Annual Report 2013
Performance
for a world in motion
™
For the online version of our annual report and to download the report see reports.nsn.com
View this report online
reports.nsn.com
Overview
Who we are, what we do and
2013 in a nutshell. Governance
guidelines and responsibilities.
01Introduction
02 NSN in brief
04 2013 highlights
06 Industry trends
08 Corporate governance
11 Risk factors
Business review
Market trends; our strategy
and transformation;
information on our business
units and markets. Financial
review of 2013.
14 Chief Executive Officer’s strategic review
16Leadership
18Strategy
20Transformation
22 Operational overview: business units
24 Operational overview: markets
26 Operating and Financial Review
44 Operational overview: sustainability
119Glossary
Financial statements
The consolidated financial
statements of the Group and
the Company financial
statements.
47
Financial statements
Introduction
Performance
for a world in motion
™
Overview
For NSN, 2013 was about real world
performance – from our innovation
to our company transformation. We
are stronger, leaner, more focused,
and more competitive than ever before.
Our technology and our people took
on the challenge presented by the
massive increase in data usage in
our customers’ networks, proving their
worth to operators and to the people
who rely on their networks every day
of the year.
On mobile devices, in operator KPIs,
and in strongly improved profitability.
Performance delivered.
Annual Report 2013
1
NSN in brief
The world’s end-to-end
specialist in mobile broadband
In August 2013, NSN became wholly
owned by Nokia with the new name
of Nokia Solutions and Networks.
On April 29, 2014, Nokia announced
that NSN would be known as Networks,
one of the three businesses of Nokia.
With a stronger ownership structure
and clear operational governance model,
we maintain our resolute focus on our
industry’s sweet spot: mobile broadband.
From the first ever call on GSM to the first call on LTE, we have
operated at the forefront of each generation of mobile technology.
Our global experts invent the new capabilities our customers need
in their networks. We provide the world’s most efficient mobile
networks, the intelligence to maximize the value of those networks,
and the services to make it all work seamlessly.
Our customers are many of the world’s largest and most innovative
mobile operators. Among those rewarding us with their business in
2013 were Bharti Airtel, China Mobile, Deutsche Telekom, NTT
DoCoMo, Softbank, Sprint, Telefónica, Verizon and Vodafone.
To help these companies excel, we provide a mobile broadband and
services portfolio for designing and building communications networks,
operating and maintaining them, and enhancing the subscriber
experience – all with a focus on real world network performance.
This portfolio is underpinned by one of the largest investments in R&D
in the telecommunications industry, with a total annual expenditure
of €1.8 billion in 2013 and approximately 16 000 R&D personnel.
These extensive R&D capabilities give us the ability to keep up
with the pace of change in the telecommunications sector,
where communications needs to be faster, smarter, more efficient,
interconnected, context-aware and adaptive, driven by an evolving
device landscape and exponential traffic growth.
Business units
Our Mobile Broadband business unit provides flexible
and adaptable network solutions for mobile voice and
data services. In Radio, our portfolio covers all radio
technology generations; and our Core portfolio includes a
comprehensive mobile switching portfolio and voice and
packet core solutions. Our smartphone friendly ‘Liquid’
software provides a high level of network capacity and
performance. Our expertise in customer experience
management, virtualization and software-rich solutions helps
operators to deal with new technology trends such as cloud
computing, big data, multi-media content, special events
and security.
Mobile
Broadband
Global
Services
The Global Services business unit provides mobile operators
with a broad range of services, from network implementation
to care services, managed services for network and service
operations, network planning and optimization and systems
integration. We use global and local services experts and
centralized tools and architecture at two Global Delivery
Centers and five Global Service Delivery Hubs around
the world.
2
Nokia Solutions and Networks
Nick Marshall, Principal Analyst,
ABI Research
GTI Innovation
Award 2014
Recognized by Global
TD-LTE Initiative (GTI) for
our Liquid Applications
Overview
“NSN topped our 2013 base station competitive
assessment for outstanding performance in innovation and
implementation, and received high points all around for achieving
best in class rank for the essential IP, advanced features,
multi-protocol support and LTE RAN contracts criteria.”
“For NSN, 2013 was a year of
transformation, during which we
completed the majority of actions
resulting from the major restructuring
announced in November 2011, made
headway in technology innovations
and won significant new business.
In the last two years, we have laid
a strong foundation for the future.”
Rajeev Suri, Chief Executive Officer
#1
Flexi Multiradio Base Station
Three major South Korean
operators, SK Telecom,
LG U+ and Korea Telecom,
launched LTE-Advanced
commercially first in the
world, using NSN’s Flexi
Multiradio Base Station
We have one of
the largest research
and development
commitments in the
telecommunications industry
We have operations
in approximately 120
countries around the world
with a diverse workforce
48 628
employees
Ranked as a
Leader in the
LTE IDC MarketScape*
10 Global Technology
Centers with specific
technology and competence
profiles in China, Finland,
Germany, Hungary, India,
Poland, and the U.S.
We are one of the
largest companies in the
world in our target market
€11.2bn
net sales 2013
*IDC MarketScape: Worldwide LTE
Radio Infrastructure 2013 Vendor
Analysis, Doc # 239518, February 2013.
Annual Report 2013
3
2013 highlights
Stronger, leaner
and more focused
In 2012, NSN laid the foundation for
an improved financial performance
in the first year of its transformation.
In 2013 many of the results of that
transformation became apparent
with improved profitability and NSN’s
first ever net profit.
Full-year sales
€11.2bn
Full-year sales of €11 172m down from €13 372m in 2012.
The decline was primarily due to reduced wireless infrastructure
deployment activity as well as divestments, currency fluctuations
and the strategic exit of certain customer contracts and countries.
Despite another year of restructuring,
in 2013 the net cash position of NSN
improved to EUR 1 678 million. With
six consecutive quarters of strong
operating profitability and Nokia as
the sole owner, NSN now has a solid
financial foundation.
Gross margin
36.7%
Gross margin before specific items* of 36.7% up
from 30.7% in 2012, reflecting improved efficiency
in Global Services, an improved product mix and
the divestment of less profitable businesses.
Operating profit
Key financials 2013
EURm
Net sales Operating profit before specific items
Operating profit % before specific items
Operating profit after specific items
Operating profit % after specific items
Profit for the year
EBITDA before specific items
11 172
1 105
9.9%
551
4.9%
15
1 313
The figures presented on an NSN standalone basis in this Annual Report may
differ from those reported by Nokia Corporation (‘Nokia’) due to the treatment of
discontinued operations and certain accounting presentation differences.
The Optical Networks Business has been presented as discontinued operations
in our Consolidated Financial Statements for the years ended December 31,
2013 and 2012.
*The before specific items financial measures exclude specific items for all periods:
restructuring charges, country/contract exit charges, purchase price accounting
related charges and other one-time charges.
4
€1.1bn
Operating profit before specific items* of €1 105m
up from €826m in 2012, reflecting improved gross
margin and a decline in operating expenses before
specific items* by 9%.
Net cash and other liquid assets
€1.7bn
Continued focus on working capital management and
cash generated from operations strengthened NSN’s
cash position compared to €1.3bn at the end of 2012.
Nokia Solutions and Networks
Strategy working
• Refocused business
on mobile broadband
• Improved execution
and internal processes
• 6 consecutive quarters
of strong operating profitability
91%
Two Emerging
Technologies Awards
at CTIA 2013 (Fuel Cell
solution and Liquid
Applications)
#1
Research co-operation
• With China Mobile Research Institute
• 5G research with the
NYU WIRELESS research center
• Founding member and chair of 5G
public-private partnership between
EU and 5G PPP Association
We won key LTE
contracts including China
Mobile’s and China
Telecom’s nationwide TD-LTE
networks, with Sprint in the
U.S. and with both TIM Brasil
and Oi Brasil
Overview
91 of the world’s top
100 mobile operators
are our customers
TD-LTE speed record
NSN and Sprint achieved
2.6 Gbps TD-LTE throughput
over a single sector
Quality improvement
• Over 93% of employees
trained in Quality
• Since 2011, open customer
defects reduced by almost 60%
• Confirmed outages cut
by more than a third
Liquid Applications
turn base stations into an
intelligent part of a network.
World’s first proof-of-concept
of Liquid Applications over
LTE with SK Telecom of
South Korea
Acceleration
Awareness
Intelligence
Operations
Insight
Annual Report 2013
Innovative
Services
5
Industry trends
Evolution in the context
of industry change
We have identified 10 key
developments that are emerging
in our industry. These shaped
our strategy and point to what
comes next in our fast-changing
business environment.
Industry consolidation
>70%
of the Radio market today occupied by three main players
In a market faced with flat to modest growth, possible operator
consolidation and the disruption of IT and telecommunications
convergence, we believe supplier choices made by operators
will lead to only a limited number of network infrastructure and
related service vendors able to achieve or maintain the
necessary scale in the future evolution of radio technology.
Entry of new players
Mobile data traffic growth
3
+100%
The convergence of IT and telecommunications enables a shift
of network intelligence from telecom-specific platforms to generic
data centers. This creates an opportunity for vendors to provide
cloud technology and network function virtualization, and also an
opportunity for both start-ups and established IT companies and
may result in new participants entering our industry.
Mobile data continues its exponential pace of growth. Currently,
mobile data traffic is increasing at a rate of 100% each year, with
video streaming, internet access and social media as the main
drivers. We predict that worldwide mobile data traffic will be
approximately 1000 times that of 2010 before the year 2020.
Mixed radio technology environment
Declining operator revenue growth
4
20%
Mobile networks have four generations of co-existing radio
technologies that carry billions of devices. Operators must
manage the complexity of multiple technologies, and modernize
their networks in a fast-paced environment at a reasonable cost.
Innovations like self-organizing networks and Single RAN will help
to manage multiple technologies.
Operators’ revenues from traditional mobile voice and text
messaging continue to decline as subscribers adopt over-thetop applications for voice and messaging, while the revenue
growth from the data traffic appears to not be sufficient to
maintain the past growth rates of operators’ overall revenues.
IT and one telecom vendor for planning of AT&T’s Domain 2.0
generations of radio technologies
6
increase in traffic every year
drop in SMS in Sweden in first half of 2013 compared to 2011
Source for the industry trends is NSN and various public
sources, unless stated otherwise.
Nokia Solutions and Networks
Telco cloud and virtualization
50%
$6bn
Network sharing presents opportunities to achieve scale and
efficiency, improve margins and customer experience while
addressing operators’ needs for spectrum, and paves a possible
road for operator consolidation.
Operators are facing a dual challenge of intense traffic growth and
increasingly unpredictable traffic patterns in their networks, where
data demand can double in just a few hours. Cloud technology and
virtualization of core network can be deployed to provide solutions
quickly and cost-efficiently as IT and IP hardware commoditize and
transform to more software-driven solutions.
Utilisation of spectrum assets and re-farming
From data analytics to cognitive networks
55%
50%
Operators are reallocating data services to more efficient
frequency spectrum bands, some unlicensed or presently
occupied by television and radio broadcasts. Additionally, they
are re-using GSM frequencies to support 3G and 4G roll-outs.
By doing this, operators can free up to 55% of their spectrum,
and potentially double their average 3G and 4G data speeds.
Cognitive (or self-aware) networks sense, learn, reason and
act on their own. Automation is the key to proactively solving
problems, improving customer experience and protecting
revenue. Extreme automation will help operators move from
human-scale automation in hours or days to machine-scale
automation in seconds or minutes.
Spectrum availability
Summary of key developments
cost savings by license sharing in Denmark
spectrum savings
15%
more spectrum per year
Radio spectrum is a scarce and extremely expensive resource
that is essential to an operator’s ability to keep up with the fast
pace of mobile data traffic growth. While unlicensed spectrum
and lower frequencies will present some opportunities,
operators are still faced with the challenge of how to squeeze
capacity out of their current spectrum.
* ABI Research, Research Analysis: Application: The SDN and NFV business case,
July 22, 2013.
Annual Report 2013
Overview
Network sharing and operator consolidation
the virtualized telecom market worth USD 6 billion in 2018*
fewer site visits
In recent years, the most important trends affecting NSN have been the
increase in the use of mobile data services and the resulting exponential
increase in data traffic. With end-users replacing operator services such
as voice telephony and SMS with over-the-top applications (e.g. Skype,
WhatsApp), operators’ revenue growth is slowing down, and there is an
increased need for efficiency for operators and network infrastucture and
services vendors that may lead to industry consolidation to achieve scale.
Other developments related to the need for greater efficiency are the mixed
radio technology environment, increased network sharing and re-use
of the scarce radio frequency spectrum as well as the use of cognitive
network technologies. Additionally, the attempt to reduce costs and to
increase agility is leading to the adoption of the emerging telecom cloud
and network virtualization (enabled by the current convergence of IT and
telecommunications) which may also result in new participants entering
the telecommunications vendor market.
For more information on industry trends
see reports.nsn.com/#/industry-trends
7
Corporate governance
Ensuring a clear decision-making process
On July 1, 2013, our shareholders
announced an agreement where
Nokia was to acquire Siemens’ 50%
stake in NSN. The transaction closed
on August 7, 2013, at which time
NSN became a wholly owned
subsidiary of Nokia.
8
Corporate governance
On July 1, 2013, our shareholders announced an agreement where
Nokia was to acquire Siemens’ 50% stake in NSN. The transaction
closed on August 7, 2013, at which time NSN became a wholly
owned subsidiary of Nokia.
Following the completion of the transaction, Rajeev Suri continued
as the CEO of NSN. The NSN Board of Directors was adjusted to
the new ownership structure, with the Siemens-appointed directors
resigning. In addition, Jesper Ovesen stepped down on April 25, 2014
from his position as Executive Chairman of the Board upon the
closing of Nokia’s sale of substantially all of its Devices & Services
business to Microsoft.
On April 29, 2014, Nokia announced its new strategy, a program to
optimize capital structure, and leadership team. Under its new
strategy, Nokia will focus on its three businesses: Networks (formerly
Nokia Solutions and Networks, or NSN), HERE and Technologies.
Nokia Board of Directors has appointed Rajeev Suri as President and
Chief Executive Officer of Nokia Corporation, effective May 1, 2014.
Going forward, Networks will operate under the Nokia brand. The
NSN name will no longer be used after a short phase-out period.
To ensure efficiency and simplicity, the Nokia President and CEO
will assume direct control of the Networks business and key leaders
of that organization will report to him.
Nokia Solutions and Networks
–Rajeev Suri as President and CEO of Nokia.
–Timo Ihamuotila as Executive Vice President and Group Chief
Financial Officer.
–Michael Halbherr as CEO of HERE.
NSN Board of Directors
Composition
Upon the changes related to our ownership structure in 2013
and Jesper Ovesen stepping down from his position as Executive
Chairman upon the closing of Nokia’s Devices & Services sale,
our Board of Directors comprises, on the date of this annual report,
the following three directors:
Overview
The primary operative decision-making body for Nokia is the
Nokia Group Leadership Team, which will be responsible for
Nokia Group level matters, including the Nokia strategy and
overall business portfolio. Effective May 1, 2014, the President
and CEO Rajeev Suri will chair the Group Leadership Team,
which will consist of the following members:
Timo Ihamuotila
Chief Financial Officer and
Interim President of Nokia
–Henry Tirri as Executive Vice President, and acting Head
of Technologies.
–Samih Elhage as Executive Vice President and Chief Financial
and Operating Officer of Networks.
In addition to the Nokia Group Leadership Team, Nokia also
announced the appointment of Hans-Jürgen Bill as Executive
Vice President of Human Resources, Barry French as Executive
Vice President of Marketing and Corporate Affairs, and Maria
Varsellona as Executive Vice President and Chief Legal Officer,
effective May 1, 2014.
The current senior management bodies of Networks described
in the section NSN Senior Management, including the current
Executive Board of NSN, are expected to continue with their
current compositions.
Louise Pentland
Executive Vice President at Nokia,
Chief Legal Officer
Juha Äkräs
Executive Vice President at Nokia,
Human Resources
Changes during 2013
During the year, there were the following outgoing Board Members:
Barbara Kux (replaced by Klaus Helmrich in May 2013); Klaus
Helmrich (resigned in August 2013), Joe Kaeser (resigned in August
2013); and Peter Solmssen (resigned in August 2013).
Annual Report 2013
9
10
Corporate governance
NSN Senior management
Our highest operative management body is the senior management
team known as the Executive Board. The current members of the
Executive Board, their roles and background are described on
pages 16 and 17. The Executive Board reports to the Nokia President
and Chief Executive Officer, and it meets on a monthly basis.
The Nokia President and Chief Executive Officer chairs:
–The Executive Board, which drives our strategic agenda, sets
long-term targets and makes company-wide policy decisions.
The Executive Board is also responsible for monitoring market
developments, fostering innovation, overseeing quality
improvements, developing talent, shaping our values and culture,
and change management.
–The Executive Management Team, which prepares our three-year
financial plan and annual budget, manages financial performance,
and makes day-to-day operational decisions as well as decisions
relating to investments. The Executive Management Team also
focuses on near-term performance management and forecasts,
enforcement of policies and targets, and regional and business
unit plans, goals and strategies.
The Chief Financial and Operating Officer of Networks chairs:
–Monthly Business Reviews, the primary vehicles for driving
operational business performance across units and markets,
against our strategy and annual plan.
–The Portfolio Management Board, focused on strategic portfolio
decision-making. This includes driving investment trade-off
decisions on the existing commercial portfolio, deciding on new
portfolio launches and phase-outs, and shaping the technology
and architecture underpinning the evolution of our product and
service offerings.
–The Business Transformation Board, focused on both completing
our transformation as well as driving continuous improvement
throughout the organization. Areas covered include Research
and Development (R&D) efficiency, sales acceleration, operations
optimization, services transformation, financial backbone, the
continuation of our transformation, and various new interlock
processes around procurement, operations, business units and
Customer Operations
–The Commercial Committee, which sets the process and
policy for sales operations and pricing decisions, and leads the
commercial decision-making for major customer deals. This
committee ensures appropriate transparency and scrutiny of key
financial metrics, including profitability, project assets, and cash
flow, as well as approves and tracks major commercial initiatives.
Nokia Solutions and Networks
Business review – Risk factors
Understanding the risks we face
1. Our strategy focuses on mobile broadband and accordingly
our sales and profitability depend on our success in the mobile
broadband infrastructure and related services market. We
may fail to execute our strategy or to effectively and profitably
adapt our business and operations in a timely manner to the
increasingly diverse solution needs of our customers in that
market or technological developments. Our success with our
focus on mobile broadband infrastructure and related services
is subject to various risks and uncertainties related to the
intensity of the competition, consolidation of our customers or
competitors, breadth of our product and services portfolio, our
market recognition, ability to sustain or grow our net sales to
maintain necessary scale, success in identifying and obtaining
deals meeting our profitability targets, ability to attach our
services sales to our broadband infrastructure sales and to
pursue new services-led growth opportunities, as well as ability
to maintain our efficient and low-cost operations.
Annual Report 2013
2. We face intense competition and may fail to effectively and
profitably invest in new competitive high-quality products,
services, upgrades and technologies and to bring them
to market in a timely manner and meeting related quality
requirements. We may also be negatively impacted by changes
in the competitive landscape related to the intensity of price
competition, customer finance requirements, reduced
investments by the operators, consolidation of our competitors,
and new competitors entering into our industry as a result of
acquisitions or shifts in technology. Further, quality issues related
to our products and services may cause for instance delays
in deliveries, service downtime, liabilities for network outages,
additional repair, product replacement or warranty costs to us,
and harm our reputation and our ability to sustain or obtain
business with our current and potential customers.
Overview
The summary below is a description
of risk factors that could affect NSN.
There may be, however, additional risks
unknown to us and other risks currently
believed to be immaterial that could turn
out to be material. These risks, either
individually or together, could adversely
affect our business, sales, profitability,
results of operations, financial condition,
liquidity, market share, brand, and
reputation from time to time.
3. Our sales, profitability and cash flow are dependent on the
development of the telecommunications industry in numerous
diverse markets, as well as on general and regional economic
conditions. Continued uncertainty or any further deterioration
in the global or relevant regional economic conditions may
reduce the investments made by our customers in network
infrastructure and related services; cause financial difficulties to
our customers, suppliers and partners; reduce our ability to raise
funding and provide extended payment terms; increase our
interest expenses; increase volatility in exchange rates, result
in inefficiencies due to related forecasting challenges; cause
reductions in the future valuations of our investments and assets;
or result in increased or more volatile taxes.
4. We are dependent on a limited number of customers and large
multi-year contracts, and accordingly the loss of a single
customer or issues related to a single contract can have a
significant impact on us. As a result of the future consolidation,
network sharing and joint procurement arrangements among
our customers, it is possible that an even greater portion of our
net sales will be attributable to a smaller number of large service
contracts and we may be required to provide contract terms
increasingly favorable to our customers. Further, large multi-year
contracts include a risk that the timing of sales and results of
operations associated with those contracts will differ from what
was expected. Also, any suspension, termination or nonperformance by us under the contracts may have a material
adverse effect on us because our customers have demanded
and may continue to demand stringent contract undertakings,
such as penalties for contract violations.
11
12
Business review – Risk factors
5. We are a company with global operations and with sales derived
from and manufacturing facilities and suppliers located in various
countries, exposing us to risks related to regulatory, political or
other developments in various counties or regions. Additionally,
emerging markets represent a significant portion of our total
sales and expected industry growth while those markets carry
higher degree of regulatory political risk and volatile economic
conditions. Our business and investments in emerging market
countries may be subject to risks and uncertainties, including
political unrest, volatility of the local economy, unfavorable or
unpredictable taxation treatment, exchange controls and other
restrictions affecting our ability to make cross-border transfers
of funds, regulatory proceedings, unsound business practices,
challenges in protecting our intellectual property rights,
nationalization, inflation, currency fluctuations, or the absence
of, or unexpected changes in, regulation as well as other
unforeseeable operational risks. For instance, the recent events
and instability in Ukraine and the international reaction to them
may adversely affect our business or operations in Russia and
Ukraine and/or related markets, including as a result of potential
trade sanctions or economic uncertainly or slowdown resulting
from these events. Further, in line with changes in our strategy, as
well as in some cases a difficult political or business environment
and an increasingly complicated trade sanctions environment,
we have exited or reduced operations in certain areas or
countries, with some of these exits or reductions in operations
still ongoing. We continuously monitor international
developments and assess the appropriateness of our presence
and businesses in various markets. For instance, in the light
of recent developments relating to Iran, we are assessing our
position on performing business in Iran in compliance with all
applicable trade sanctions and regulations, including potentially
increasing our business activities with our existing customers in
the country, while we work with them to find solutions to honor
existing contractual obligations. Such actions may trigger
additional investigations, including tax audits by authorities
or claims by contracting parties. The result and costs of such
investigations or claims may be difficult to predict and could lead
to lengthy disputes, fines or fees, indemnities, or a settlement.
6. Our efforts aimed at managing and improving financial
performance, cost savings and competitiveness may not lead to
targeted results or improvements. Any failure by us to determine
the appropriate prioritization of operating expenses and other
costs, to identify and implement on a timely basis the appropriate
measures to adjust our operating expenses and other costs
accordingly, or to maintain achieved reduction levels, could have
a material adverse effect on our business, results of operations
and financial condition.
7. We are increasingly collaborating and partnering with third
parties to develop technologies, products and services.
Additionally, we have outsourced various activities to third parties
and are relying on them to provide certain services to us. If any
of the companies we partner and collaborate with were to fail to
perform as planned or if we fail to achieve the collaboration or
partnering arrangements needed to succeed, we may not be
able to bring our products or services to market successfully
or in a timely way.
8. We may fail to manage our manufacturing, service creation
and delivery, as well as our logistics efficiently, and without
interruption, or the limited number of suppliers we depend on
may fail to deliver sufficient quantities of fully functional products
and components or deliver timely services meeting our
customers’ needs. We may experience difficulties in adapting
our supply to meet the changing demand for our products and
services, both ramping up and down production at our facilities
and network implementation capabilities as needed on a timely
basis; maintaining an optimal inventory level; adopting new
manufacturing processes; finding the most timely way to develop
the best technical solutions for new products; managing the
increasingly complex manufacturing process and service
creation and delivery process or achieving required efficiency
and flexibility, whether we manufacture our products and create
and deliver our services ourselves or outsource to third parties.
9. Our net sales, costs and results of operations, as well as our
competitive position through the impact on our competitors
and customers, are affected by exchange rate fluctuations,
particularly between the euro, which is our reporting currency,
and the US dollar, the Japanese yen and the Chinese yuan,
as well as certain other currencies.
10.An unfavorable outcome of litigation, contract related disputes
or allegations of health hazards associated with our business
could have a material adverse effect on our business, results
of operations, financial condition and reputation.
11.We have operations in a number of countries and, as a result,
face complex tax regulations and practices and could be
obligated to pay additional taxes in various jurisdictions. Further,
our actual or anticipated performance, among other factors,
could reduce our ability to utilize our deferred tax assets.
Nokia Solutions and Networks
13.We may be adversely affected by negative developments with
respect to the customer financing or extended payment terms
we provide to our customers. In addition to the potential payment
defaults by the customers, such developments may impair our
ability to arrange, facilitate or provide needed financing, including
longer or extended payment terms to customers, or to sell our
customer receivables to improve our liquidity.
14.Our intellectual property (IP) portfolio includes various patented
standardized or proprietary technologies on which our products
and services depend and we also use our IP portfolio for revenue
generation. Third parties may use without a license and
unlawfully infringe our IP or commence actions seeking to
establish the invalidity of the intellectual property rights of these
technologies, or we may not be able to sufficiently invent new
relevant technologies, products and services to develop and
maintain our IP portfolio, maintain the existing sources of
intellectual property related revenue or establish new sources.
15.Our products and services include increasingly complex
technologies, some of which have been developed by us or
licensed to us by certain third parties. As a result, evaluating
the rights related to the technologies we use or intend to use
is more and more challenging, and we may face claims that
we could have allegedly infringed third parties’ intellectual
property rights. The use of these technologies may also result
in increased licensing costs for us, restrictions on our ability to
use certain technologies in our products and/or costly and
time-consuming litigation.
Forward-looking statements
Overview
12.Our operations rely on the efficient and uninterrupted operation
of complex and centralized information technology systems and
networks and we store certain personal and consumer data
as part of our business operations. If a system or network
inefficiency, cybersecurity breach, malfunction or disruption
occurs, this could have a material adverse effect on our business
and results of operations.
This report includes forward-looking statements. The words
‘should’, ‘could’, ‘continue’, ‘expect’, ‘target’, ‘estimate’, ‘may’,
‘plans’, ‘will’, ‘believe’, ‘anticipate’, ‘intend’, ‘predict’, ‘assume’,
‘positioned’, ‘shall’, ‘risk’ and other similar expressions that are
predictions or indications of future events and future trends
identify forward-looking statements. These forward-looking
statements include all matters that are not historical facts, in
particular but not limited to the statements in Chief Executive
Officer’s strategic review, Strategy, Transformation, Industry
trends, The Operating and Financial Review and Risk factors,
are based on the beliefs of the management of the Company as
well as assumptions made by and information currently available
to the management of the Company, and such statements may
constitute forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results,
performance or achievements of the Group, or industry results,
to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other important factors
include, among other things, general economic and business
conditions, the competitive environment, the ability to employ
competent personnel, market development relating to the sector
and other risks described in Risk factors. The forward-looking
statements are not guarantees of the future operational or
financial performance of the Group.
16.We may be unable to retain, motivate, develop and recruit
appropriately skilled employees.
17. We may not be able to achieve targeted benefits from or
successfully implement planned transactions, such as
acquisitions, divestments, mergers or joint ventures, for instance
due to issues in selecting successfully the targets or failure to
execute transactions or due to unexpected liabilities associated
with such transactions.
For further explanation of these risks, please refer to Nokia’s annual
report on Form 20-F for the year 2013, which includes risks relating
to NSN (refered to as Networks). A copy can be found at
nokia.com/investors
Annual Report 2013
13
14
Chief Executive Officer’s strategic review
A strategy built on firm foundations
“For NSN, 2013 was a year of
transformation, during which
we completed the majority of
actions resulting from the major
restructuring announced in
November 2011, made headway
in technology innovations and
won significant new business.
In the last two years, we have laid
a strong foundation for the future.”
The financial results for NSN in 2013 demonstrate the effectiveness
of our transformation in achieving our aims of improving our
profitability and delivering on our cost savings target of more than
EUR 1.5 billion.
In 2013, we also reported our best ever gross margin performance,
drove up operating profit and margin compared with 2012, and
sustained our excellent cash performance.
On a full-year basis, operating profit before specific items improved
by over a third to EUR 1.1 billion, continuing our progress in
improving profitability and overtaking our record-beating 2012
results. Gross margin rose year-on-year from 30.7% to 36.7%
before specific items. Our cash management also remained strong:
NSN closed 2013 with EUR 1.7 billion in net cash. We saw a decline
in our net sales of 16.5% to EUR 11.2 billion. This was largely driven
by reduced wireless infrastructure activity affecting both our Mobile
Broadband and Global Services businesses, headwinds from
foreign currency fluctuations, and divestments of businesses not
consistent with our strategic focus, as well as the exiting of certain
customer contracts and countries. We are taking focused action
to address the slowdown in revenue and put increased focus on
revenue growth and market share gains while aiming to maintain
strong profitability and cash generation.
Across the world, we have won successful business with major
customers and in significant projects, including TD-LTE wins with
China Mobile and China Telecom as well as Sprint in the U.S., LTE
wins with MTS in Russia, SFR in France, Vodafone in New Zealand,
and network modernization for Oi in Brazil.
Completing our restructuring
The end of 2013 saw an end to the majority of the restructuring
efforts announced by NSN in November 2011. In stating our financial
goal of improved profitability, we set a target of reducing non-IFRS
annualized operating expenses and production overheads by
EUR 1 billion in cost savings, which was later ultimately increased
to a goal of more than EUR 1.5 billion by the end of 2013, compared
to the end of 2011.
We comfortably achieved that target in the course of the year.
For instance, we reduced our real estate footprint by approximately
419 000 square meters during 2013 – and by approximately 827 000
square meters during the restructuring as a whole. Our headcount
continued to fall during 2013. Over the course of the restructuring,
we have reduced headcount considerably and at the end of
December 2013, NSN had 48 628 employees.
The restructuring focused not on one-off cost reductions, but on
making deep structural changes that alter the very fabric of the
company and our ability to run our business effectively. As a result,
we have built a strong foundation for focusing on profitable
future growth.
Nokia Solutions and Networks
Adjusted gross margin
(before specific items)
%
Net sales
EUR million
13 645
13 372
11 172
27.5%
36.7%
Adjusted operating profit
(before specific items)
EUR million
30.7%
1105
826
338
2011
2012
2013
2011
2012
An ambitious strategy for growth
To improve our financial performance, and to realign the company
with our aim of becoming a mobile broadband powerhouse, we
have – during 2012 and 2013 – pursued a highly focused strategy.
The result is a radically streamlined, efficient company, which is
both highly competitive and well-placed to support our customers.
Having successfully pursued our strategy of turning NSN into
‘the world’s mobile broadband specialist’, we are now expanding
our scope to become ‘the world’s end-to-end mobile broadband
specialist’. In doing so, we plan to continue on the path of profitability
and execution excellence we have followed so far, and are focusing
on the top line of our business after two years of retrenchment.
We also intend to build on our number-two position in services.
Over the past two years, we have invested in constructing a profitable
services business. We are now focusing on bringing that business
back to growth, while defending profitability. Our services approach
includes renewed aspirations in managed services going beyond
traditional managed services into exciting new areas, and ambitious
plans in systems integration to help our customers negotiate the
convergence of telecommunications and IT.
The final pillar of NSN’s new strategy is quality and execution. These
have been the hallmarks of our progress over the last two years and
we intend to continue on our path of using these to gain competitive
advantage as well as to maintain our excellent business discipline.
2011
2012
2013
Our people
NSN has bold aspirations, not only in technology and commercial
terms but also in terms of taking employee engagement to the
highest levels. Our key measure of employee satisfaction during the
last two years ended 2013 above target, and we will dedicate time
over the coming months to actively supporting the growth of a new
culture for NSN; one that will help us achieve our ambitious aims and
support our people in the pursuit of satisfying careers.
The future
Having just launched its new strategy, there is plenty of work ahead
for NSN to implement it and achieve our ambitious goals. At the same
time, our market continues to be challenging, although there are
pockets of growth and opportunity, which we intend to exploit to
the full.
Business review
Three strategic pillars reinforce our ambition
In setting end-to-end mobile broadband leadership as our aim, we
continue to focus on our Radio and Core businesses and expand
into areas that are consistent with our overall business focus. We
will align our efforts around key initiatives in radio, small cells, core,
IP routing and mobile backhaul, which will be achieved through a
combination of our own innovation and product development as
well as carefully selected partnerships.
2013
The day before this report was published, Nokia announced a new
strategy and leadership team and I am honored to have been asked
to take on the role as President and Chief Executive Officer for Nokia,
and excited about the possibilities that lie in our future. You can read
more about the new management structure in our Governance
section. We have a clear vision for Nokia as a leader in technologies
that are important in a world of billions of intelligent connected
devices. The strategy for NSN, which will now be known as Networks,
clearly supports this vision and our customers can have confidence
that we will continue to make the investments necessary to deliver
the innovation needed to help them build even stronger businesses.
Our top priority, as always, is our customers. We continue to make
decisions with their needs and requirements in mind and to seek to
align our activities ever more closely around them, with the aim of
promoting their success and our own.
Rajeev Suri
Chief Executive Officer
For quality, our priorities will include further increases in customer
satisfaction and product quality. Strong execution, meanwhile, has
played a central role in our successful transformation to date and we
will continue on this path, shaping NSN into an ever-more lean and
agile company.
Supporting our strategic pillars are three enablers: innovation, which
continues to be the heart of NSN’s ability to compete and to serve our
customers; partnerships, which will be increasingly important as we
better leverage the telco ecosystem and automation, which is
essential for further efficiency gains and to enable value added
activities to meet customer requirements.
Annual Report 2013
15
16
Leadership
An experienced
senior management team
Rajeev Suri
Chief Executive
Officer (CEO)
Deepti Arora
Vice President, Quality
Deepti has more than 25 years’ experience in the telecommunications
industry and has held various roles in quality, business operations,
engineering, sales, and general management. Prior to joining NSN in 2011,
Deepti was responsible for Global Quality at Motorola’s Wireless Networks.
With more than 24 years of international experience, Rajeev is a leader who
cherishes the opportunity to undertake transformational and turnaround
assignments. He joined Nokia in 1995 and held numerous executive roles.
At NSN, Rajeev headed the Asia Pacific region in 2007, moving into leading the
Global Services business unit, where he drove the growth and transformation
of NSN’s Services business. Rajeev has been CEO since October 2009,
presiding over consistently improving results, leading to the successful
transformation and restructuring of the company.
Samih Elhage
Chief Financial
Officer (CFO)
Hans-Jürgen Bill
Executive Vice President,
Human Resources
Hans-Jürgen has 20 years of experience in the telecommunications industry.
Prior to NSN, he held a range of diverse roles at Siemens, which he joined in
1983. When NSN was formed in 2007, Hans-Jürgen became Head of West
South Europe region for the company. He assumed his current leadership role
in Human Resources in 2009, driving the strategic development of NSN’s
global workforce.
Kathrin Buvac
Vice President, Corporate Strategy
and CEO’s Office
Samih has more than 24 years of experience in the telecommunications
industry. He is known as a strategic and results-oriented senior executive.
He joined NSN in March 2012 as Chief Operating Officer. In 2013, Samih
became Chief Financial Officer while maintaining his previous responsibilities.
Before joining NSN, he served as a senior adviser to leading private equity and
global management consulting firms. He has been a member of the Executive
Board since March 2012 overseeing the transformation of NSN’s business
operations that led to considerable improvement in its financial strength.
Kathrin has more than 13 years of international experience in the
telecommunications industry. As the company’s chief strategist, Kathrin helps
to shape NSN’s vision and strategy working with senior leaders, customers
and analysts worldwide. Her responsibilities include market forecasting,
competitor intelligence, portfolio watch and corporate business development,
Secretary to the Executive Board and Chief of Staff to the CEO. Kathrin was
instrumental in developing the company’s turnaround strategy. Kathrin held
senior positions in strategy, financial management, M&A, in-house consulting
and business development at NSN, Siemens and EADS previously.
Ashish Chowdhary
Executive Vice President/President,
Asia, Middle East and Africa
The Leadership Team for NSN as at the date of this annual report, April 30,
2014. For the governance structure of NSN going forward, please see the
Governance section on page 8.
Ashish has over 20 years of international experience in the enterprise and telecom
sectors. He has led Customer Operations in the Asia, Middle East and Africa
market since January 2011. With a track record of delivering consistently strong
results and business growth, Ashish has led various organizations as Head of
India region, Global Managed Services and Global Services before his present
assignment. He has been a member of the NSN Executive Board since 2009.
Nokia Solutions and Networks
Rick Corker
Executive Vice President/President,
North America
Rick has more than 20 years of international experience in the
telecommunications industry. He leads sales and operations for the U.S.
and Canada. Prior to his current role, Rick led NSN’s Asia Pacific region,
helping the company gain share in key markets like Japan and Indonesia.
He has held senior sales and marketing positions in Australia, the Americas,
Europe, and Asia Pacific.
Equipped with 30 years of experience in the telecom and IT domain, Eva
joined NSN in 2013. Previously, she was with Ericsson in management roles
including Vice President of Product Related Services with focus on network
implementation, care and optimization services. She has also served on the
executive boards of telecom operators as the CIO at 3 Scandinavia and P4
in Poland. In addition, Eva held management positions at IBM and IT
consultancy companies.
Barry French
Executive Vice President, Marketing,
Communications and Corporate Affairs
Barry joined Nokia in May 2006 and has been a member of the senior
management team since NSN was created. His responsibilities include
marketing, communications, financial and industry analyst relations,
corporate security, government relations, regulatory affairs, corporate
social responsibility and sustainability, and occupational health and safety.
He has a wide range of experience in Fortune 500 companies, including
Dell and United Airlines.
Alexander Matuschka
Chief Restructuring Officer
Alexander has gained extensive experience in various positions in the
automotive and machining industry including restructuring, reorganization,
procurement, logistics, supply chain management, and lean manufacturing
and assembly. He was an industrial adviser for private equity companies
before joining NSN in 2011.
Annual Report 2013
An inventor and technology visionary, Hossein leads long-term technology
evolution and drives transformational innovations for the company. Having
held several management positions in BT, T-Mobile, Sun Microsystems
over the last 25 years and as an active adviser and board member of several
technology start-ups, he brings in-depth technology expertise, customer
focus and innovation to NSN. Hossein joined the company in 2010.
Marc Rouanne
Executive Vice President,
Mobile Broadband
Business review
Eva Elmstedt
Executive Vice President,
Global Services
Hossein Moiin
Executive Vice President,
Technology and Innovation
Marc has over 20 years of international management experience in the
telecommunications industry. He joined NSN in 2008 to lead NSN’s Radio
Access business, and has since turned NSN into a leader in LTE and one of
the largest software developers in the world. Marc has significant experience
in executive leadership bringing 2G and 3G technologies to mass market.
He held an executive position in Alcatel-Lucent before joining NSN.
René Svendsen-Tune
Executive Vice President/President,
Europe and Latin America
René has more than 25 years of global experience in the IT and
telecommunications industries. He leads sales and operations for the Latin
America, West Europe, South East Europe and East regions. Prior to joining
NSN in 2012, he was chief executive of Teleca, a supplier of software services
to the mobile, consumer electronics and automotive industries. Before that
he served in a range of leadership positions for 13 years with Nokia.
Maria Varsellona
Executive Board Member,
General Counsel
Maria joined NSN in 2013 from Tetra Pak, where she was the Group General
Counsel. Previously, Maria held senior legal positions in GE Oil & Gas for many
years, with a specific focus on managing legal affairs for commercial
operations and global services. As an admitted lawyer in Italy and England,
Maria started her career in private practice in both countries, and she also
lectured international contract law at the University of Florence, Italy.
17
18
Strategy
A strategy that builds
on a solid platform
In 2011, NSN announced a bold strategy
focused on our industry’s sweet spot:
mobile broadband. After achieving the
objectives of this two-year turnaround
strategy, we evolved our strategy in late
2013 to focus on end-to-end mobile
broadband leadership, services growth,
and quality and execution. Across these
focus areas are three enablers: innovation,
partnering, and automation.
Our three strategic pillars reinforce our ambition
End-to-end mobile broadband leadership
We continue to focus on our Radio and Core businesses and also
plan to address new areas within mobile broadband for further
growth. In Radio, we see considerable opportunities to strengthen
our position in Single RAN and further improve our position in LTE.
Further, we believe small cells, which are targeted on a smaller
geographical area and a fewer number of users, represent an
area of significant opportunity for the future, and that we have a
competitive advantage with our microcells and picocells, which
are estimated to be the smallest in the industry and are also uniquely
able to provide feature parity with larger macrocells.
In the Core business, we estimate that we have taken an early lead
in the effort of providing a fully virtualized Liquid Core, as well as
positioning ourselves well with respect to the emerging telco cloud
through our already existing commercial solutions.
Services growth
During our transformation in the past two years, we rebalanced our
Global Services business by adjusting the services portfolio, exiting
from certain customer contracts and focusing on the business and
geographic areas where we can add the most value.
In our refreshed strategy, we aim to grow this business by focusing
on three priorities:
–Pursuing services-led growth opportunities, particularly in the
Network Planning and Optimization and Managed Services
businesses, for instance for telco cloud.
–Capitalizing on the volume of the Mobile Broadband business unit
to scale up Network Implementation and Systems Integration
services.
–Focusing on operational excellence in Global Services; optimizing
both end-to-end services delivery and the day-to-day networks
operations through Care services.
Mobile
broadband
leadership
Services
growth
Quality
& execution
Innovation
Partnering
Automation
Nokia Solutions and Networks
Quality and execution
We have an ambition to make quality a competitive differentiator
and believe that the importance of end-to-end quality is increasing
in the telecommunications industry, while the complexity and cost
of delivering it are rising as well. The intolerance of lapses in service
from mobile broadband subscribers and operators means that
quality improvements have a direct impact on the reputation and
success of network suppliers. We aim to meet these quality
requirements proactively to ensure that mobile operators can provide
their customers with an excellent end-user experience. We are also
focused on continuously improving efficiency in all operations.
Partnering
We will leverage the broader IT and telecommunications ecosystem
with an increased focus on partnerships, ranging from mobile
transport, packet networks and IT hardware to core virtualization,
network security, Liquid Applications and specialized services.
Automation
We have leveraged automation in areas such as Global Delivery
and R&D Centers, making considerable progress in efficiency and
profitability. We plan to extend the automation focus to other areas,
aiming to improve efficiency and gain more time for value-added
work dedicated to improving its offerings for the customers.
Business review
Supporting our strategic pillars are three enablers
Innovation
Our customer-focused innovation aims to deliver a better return on
investment than pure technology research, and to direct resources
and attention to specific operator challenges. We have one of the
largest R&D commitments in the telecommunications industry, and
with a portfolio of around 4 000 patent families, we are a significant
holder of intellectual property rights.
Managing the
broadband deluge
in Saudi Arabia
The Hajj is an annual,
week-long pilgrimage when
millions of visitors move
through Al Masha’er, from
Mina to Muzdalifah and on to
Arafat, an area of 15 square
kilometers in Saudi Arabia.
This unique event with an
extremely high number of
people creates high-density
traffic, requiring NSN’s
Special Event Support
Services to maintain optimal
network performance under
exceptional conditions.
–Over 31 million users
served
–Over 3 500 terabytes
in internet traffic
Real World Performance
LTE coverage to 76%
of Saudi Arabia
98%
Call success rate
For more Real World Performance
case studies see reports.nsn.com/#/case-studies
Annual Report 2013
19
20
Transformation
A second year
of transformation
In 2013 we achieved our target of reducing
our annualized operating expenses and
production overhead, excluding special
items and purchase price accounting
related items by more than EUR 1.5 billion
compared to the end of 2011.
In November 2011, when we announced a strategy to focus
on mobile broadband and services, and also launched an
extensive global restructuring program, we had set this target
at EUR 1 billion. In January 2013, this target was raised to
EUR 1.5 billion, and in July 2013 this target was further raised
to ‘more than EUR 1.5 billion’.
While these savings were expected to come largely from
organizational streamlining, the program also targeted areas
such as real estate, information technology, product and service
procurement costs, overall general and administrative expenses,
and a significant reduction of suppliers in order to further lower
costs and improve quality.
Continued
focus on mobile
broadband
Our focus on mobile broadband strengthened our leading
position in LTE and LTE-Advanced. We signed important
contracts with major operators in the U.S. and China and
extended our leadership in the advanced mobile
broadband markets of Japan and South Korea.
Services
business
transformation
Our Global Services business showed remarkable results
with improved gross margins through exiting unprofitable
contracts. We also increased the efficiency of our services
through centralization in Global Delivery Centers,
standardization and automation.
Real estate
footprint reduction
Building on the 2012 real estate footprint reduction
of 408 000 m2, in 2013 we continued the consolidation
of our office space, closing 61 sites and reducing the
production footprint by closing the Bruchsal factory,
altogether equaling 419 000 m2.
Nokia Solutions and Networks
Innovation and
improved R&D
efficiency
Business review
Despite our restructuring, in 2013 we increased our R&D
investment in mobile broadband. We also increased our
R&D efficiency and continued to focus on delivering to
customer-specific requirements.
Vodafone India
In 2013 Vodafone India modernized their network and
brought together subscriber data spread across multiple
legacy systems into one Home Location Register (HLR).
Reducing the complexity and high operational costs could
only be achieved by the largest migration of its type ever
performed at NSN. Despite being spread across multiple
sites, the new centralized HLR and management system
was up and running with no outages and 100% data
reconciliation in the first attempt.
Targeting other
costs
In 2013, we continued to streamline our cost structure
and benefit from the policies that we had put in place in
2012 regarding costs such as travel expenses and the
reduction in the number of suppliers.
Strong cash
position
Real World Performance
In 2013, we maintained our strong cash position despite
ongoing restructuring related outflows, generating free
cash flow in every quarter.
165+m
–Network service
availability increased
to 99.999%
–30% extra network
capacity created without
any new HLR nodes
subscribers in
one home register
For more Real World Performance
case studies see reports.nsn.com/#/case-studies
Annual Report 2013
21
22
Operational overview: business units
Performance in the real world:
business units
NSN has two business units –
Mobile Broadband and Global Services.
In 2013 these segments each represented
approximately half of NSN’s net sales.
Mobile Broadband
€5.3bn
7.9%
Net sales
Operating profit*
*Before specific items.
Our Mobile Broadband business unit provides flexible and adaptable
network solutions for mobile voice and data services through the
Radio and Core businesses. Our Radio business covers all
generations of radio technology: GSM, CDMA, WCDMA, and LTE.
To date, we have delivered over 3 million base stations. We serve
more than 1 billion subscribers in our 3G networks globally, and at
the end of 2013 we had 117 commercial LTE references. We believe
we are the leading global vendor for LTE both in Korea and Japan,
and we also have the largest market share of non-Chinese network
suppliers of China Mobile’s TD-LTE network.
Our Core product portfolio includes voice, packet core, IP Multimedia
Subsystem/Voice over LTE and Subscriber Data Management
solutions as well as full virtualization solutions. The largest 4G LTE
network in the world is powered by our LTE IMS core. Additionally,
our expertise in customer experience management, virtualization
and software-rich solutions helps operators to deal with the new
technology trends such as cloud computing, big data, multimedia
content, special events, security, and more. We deliver our
Customer Experience Management solution to more than half of the
world’s biggest operators.
The operating profit before specific items of Mobile Broadband
declined from EUR 490 million in 2012 to EUR 420 million in 2013,
as a result of lower net sales and costs incurred in anticipation of
a technology shift to TD-LTE, which was partially offset by an
improved gross margin and a reduction in operating expenses.
Nokia Solutions and Networks
Global Services
Net sales
Operating profit*
*Before specific items.
Our Global Services business unit provides mobile operators
with a broad range of services. Network Implementation includes
services needed to build, expand or modernize a communications
network efficiently. Customer Care includes software and hardware
maintenance as well as competence development services. Within
the Managed Services business, we take responsibility for running a
range of services for operators, from network operations to service
operations, which enables operators to manage service life-cycles
efficiently and enhance their customers’ experience. The Network
Planning and Optimization business offers network assessment as
well as capacity and configuration planning. Our Systems Integration
capabilities ensure that all the elements of a new mobile broadband
solution seamlessly bring together new and legacy technologies.
–700 000 LTE users
–Traffic peaked more than
three times the level of
2012’s event
–Latency consistently at
+10Mbps
Real World Performance
The NSN network delivered
a consistent experience
to LG U+ customers
Business review
€5.8bn
12.0%
The Busan
Fireworks Festival
is a highly anticipated
two-day event of concerts
and diverse programs,
culminating in one of the
world’s largest fireworks
displays and drawing crowds
of over 1.5 million visitors
each year. Korean operator
LG U+ relied on NSN to
prepare their networks for
huge volumes of data traffic
in one concentrated area.
NSN introduced the latest
LTE load balancing software
and used our Traffica network
management tool to monitor
the network performance
in real-time.
100%
service availability
Over the course of 2013, a growing percentage of our services were
delivered through our Global Delivery Centers, which together with
the local delivery services provide greater efficiency for customers.
We use global and local services experts and centralized tools and
architecture at two Global Delivery Centers and five Global Service
Delivery Hubs around the world.
The operating profit before specific items of Global Services
increased from EUR 334 million in 2012 to EUR 693 million in 2013,
as the increase in gross margin more than compensated for the
decline in net sales, and the operating profit before specific items
in 2013 was further supported by a reduction in operating expenses.
For more Real World Performance
case studies see reports.nsn.com/#/case-studies
Annual Report 2013
23
24
Operational overview: markets
Performance in the real world:
geographical markets
In 2013, NSN’s country operations were
grouped into three main geographical
groups: Asia, Middle East and Africa
(AMEA); Europe and Latin America (ELAT);
and North America (NAM).
These three markets further divide into
regions containing our sales and delivery
teams which benefit from a very close
relationship with mobile operators in
their countries.
AMEA summary
Key highlights
•53 countries in Asia, Middle East
and Africa
•#1 foreign vendor in China in TD-LTE
•Entered new markets in Libya
and Myanmar
Net sales by geographic area (EURm)
50%
AMEA
€5 549m
Our Asia, Middle East and Africa market includes a diverse range of
countries – from countries with the world’s most advanced networks,
like Japan and Korea, to fast-developing telecom markets, like
Kenya, Bangladesh, India and Vietnam. NSN has strong mobile
broadband momentum in various countries – Saudi Arabia, China,
Japan, South Korea, Indonesia, Australia and others.
38%
NSN works with leading operators in 53 countries – Vodafone,
China Mobile, China Unicom, China Telecom, Softbank, KDDI, NTT
DoCoMo, KT, SKT, Telkomsel, Bharti Airtel, Etisalat, Ooredoo, STC,
Zain and many others.
ELAT
€4 317m
The AMEA market has one Global Delivery Center in India; four
R&D technology centers in China and one in India; and four
manufacturing units in China and one in India.
12%
NAM
€1 306m
Nokia Solutions and Networks
NAM summary
Key highlights
Key highlights
•50 countries in Europe and
11 in Latin America
•Operations in the U.S. and Canada
•LTE contracts with major
Russian operators
•Success in Latin America with
Oi Brasil, TIM Brasil, Telefónica Chile
and Avantel Colombia
Europe is home to our headquarters in Finland and to our Global
Delivery Center in Portugal. We also have extensive R&D expertise
in Europe, including some of our largest technology centers working
on future mobile broadband technologies.
In Europe, we work with all major operators, including Orange,
Vodafone, Deutsche Telekom, MTS Sistema, MegaFon,
TeliaSonera and WIND, serving hundreds of millions of demanding
and sophisticated customers. Operators like Telefónica, TIM and
Portugal Telecom are present in both Europe and Latin America on
a very large scale. In Latin America, we work with all major operators,
including Oi, TIM, Telefónica, América Móvil, Telecom Personal,
Nuevatel and Avantel. The mobile broadband growth in Latin
America has an extremely high potential, as the majority of the
mobile devices are not yet 3G capable.
Business review
ELAT summary
•Work with 8 of the top 10 mobile
North American operators
•Selected by Sprint for the deployment
of a TD-LTE network
With strong demand for advanced services driven by growth in the
smartphone market, 4G LTE has been hotly embraced by all major
NAM operators. These operators have invested to provide for the
best in coverage and speed to grow their market share. Our major
LTE contract with T-Mobile USA, our new TD-LTE contract with
Sprint as well as our IMS solution with Verizon have positioned
our customers well to compete in this service-rich market.
We also have our ‘Innovation Lab’, our flagship mobile broadband
testing and development facility, located in the heart of Silicon Valley.
The North America region was one of our fastest growing regions
in 2013 and delivered strong net sales growth in both products
and services.
For more information on our performance worldwide
see reports.nsn.com/#/case-studies
Annual Report 2013
25
26
Operating and Financial Review
A second year of transformation
Overview
For an overview of our business, see pages 2 and 3, and 2013
highlights on pages 4 and 5. See also our industry trends on pages
6 and 7, our Chief Executive Officer’s strategic review on pages 14
and 15, our strategy and transformation on pages 18 to 21, and
operational overview on pages 22 to 25.
Principal factors and trends affecting our results of operations
The following sections describe the factors and trends that affect our
net sales and profitability.
Industry trends
In recent years, the most important trends affecting us have been
the increase in the use of mobile data services and the resulting
exponential increase in data traffic, which however has not been
directly reflected in operators’ revenue. With end-users replacing
operator services such as voice telephony and SMS with over-thetop applications (e.g. Skype, WhatsApp), operators’ revenue growth
is slowing down, and there is an increased need for efficiency for
operators and network infrastructure and services vendors that may
lead to industry consolidation to achieve scale. Other developments
related to the need for greater efficiency are the mixed radio technology
environment, increased network sharing, and re-use of the scarce
radio frequency spectrum, as well as the use of cognitive network
technologies. In addition to the attempts to reduce their costs, the
operators want to increase their agility through the adoption of the
emerging telco cloud and network virtualization which is enabled
by the convergence of IT and telecommunications.
Pricing and price erosion
The pricing environment remained intense in 2013. In particular,
a wave of network modernization that has taken place primarily
in Europe and increasingly in other regions including Asia Pacific
has continued to put pressure on pricing as the vendors compete
for market share.
Our net sales are impacted by these pricing developments. Although
some regional variation exists, price erosion is evident across most
geographical markets and impacts our sales and profitability.
Product and regional mix
Our profitability is also impacted by the product mix, software sales
and regional mix.
Products and services have varying profitability profiles. The Mobile
Broadband business offers a combination of hardware and software.
These products, in particular software products, have higher
gross margins; however, they require much higher research and
development investments. Global Services offerings are typically
labor intensive while carrying low research and development
investment, and have relatively low gross margins compared
to the hardware and software products of Mobile Broadband.
Regional sales also carry varying profitability. Overall, profitability for
certain regions should only be seen as indicative, since profitability
can vary from country to country within a particular region – and even
from customer to customer within a particular country. In general,
developed markets provide relatively high margins while emerging
markets – where end-users and therefore mobile operators are often
more financially constrained – provide lower margins.
Cyclical nature of projects
In addition to the normal industry seasonality described in the section
‘Certain other factors’, there are normal peaks and troughs in the
roll-out of large infrastructure projects. The timing of roll-outs is
dependent on factors that affect our customers, such as new
spectrum allocation, network upgrade cycles, and the availability
of new consumer devices. Our net sales are affected by the cycle
stages of these large projects, and the extent to which they overlap.
Overall, profitability can be affected by the sales impact as well as
the requirement to source large volumes of components at short
notice, which can impact the cost of sales.
Continued efficiency improvements
Efficiency improvements are expected to continue in 2014 as we
continue to realize some of the benefits from the restructuring
program announced in 2011. We also plan further efficiency gains
from increased automation in Global Service delivery and other
areas, as well as continued improvements in research and
development efficiency.
Cost of components and raw materials
There are several factors that drive our profitability. Scale,
operational efficiency and cost control have been, and will continue
to be, important factors affecting profitability and competitiveness.
Our product costs are comprised of the cost of components,
manufacturing, labor and overheads, royalties and license fees,
depreciation of product machinery, logistics costs, and warranty
and other quality costs.
Targets and priorities
We are putting increased focus on revenue growth and market share
gains, while aiming to maintain strong profitability and cash generation.
Longer term, we continue to target an operating margin of between
5% and 10%, before specific items.
We expect our operating margin for the full year 2014 to be towards
the higher end of our targeted long-term operating margin range of
5% to 10%, before specific items. In addition, we expect our net sales
to grow on a year-on-year basis in the second half of 2014. This outlook
is based on our expectations regarding a number of factors, including:
–Competitive industry dynamics;
–Product and regional mix;
–The timing of major new network deployments; and
–Expected continued improvement under our transformation programs.
Nokia Solutions and Networks
Operating and Financial Review
Certain other factors
Exchange rates
Our business and results of operations are from time to time affected
by changes in exchange rates, particularly between the euro,
our reporting currency, and other currencies such as the U.S. dollar
and the Japanese yen. Foreign currency denominated assets and
liabilities, together with highly probable purchase and sale
commitments, give rise to foreign exchange exposure.
To mitigate the impact of changes in exchange rates on our results,
we hedge material transaction exposures, unless hedging would be
uneconomical due to market liquidity and/or hedging cost. We hedge
significant forecasted cash flows typically with an approximately
12-month hedging horizon. For the majority of these hedges, hedge
accounting is applied to reduce income statement volatility. We also
hedge significant balance sheet exposures. Our balance sheet is
also affected by the translation into euro for financial reporting
purposes of the shareholders’ equity of our foreign subsidiaries
that are denominated in currencies other than the euro. In general,
this translation increases our shareholders’ equity when the euro
depreciates, and affects shareholders’ equity adversely when the
euro appreciates against the relevant other currencies (year-end
rate to previous year-end rate).
In 2013, the Japanese yen depreciated by 26.8% against the euro.
During that year, approximately 12% of our net sales were generated
in Japanese yen. The depreciation of the Japanese yen also
contributed to lower cost of sales and operating expenses, as
approximately 7% of our cost base was in Japanese yen. In total,
before hedging, the depreciation of the Japanese yen had a negative
impact on our operating profit in 2013.
Business review
The magnitude of foreign exchange exposures changes over time
as a function of our presence in different markets and the prevalent
currencies used for transactions in those markets. The majority of our
non-euro based sales are denominated in U.S. dollars, but our strong
presence in emerging markets like China and India also gives rise to
foreign exchange exposure in several emerging market currencies.
The majority of our non-euro based purchases are denominated in
U.S. dollars. In general, depreciation of another currency relative to
the euro has an adverse effect on our sales and operating profit,
while appreciation of another currency relative to the euro has a
positive effect. In addition to foreign exchange risk of our own
sales and costs, our overall risk depends on the competitive
environment in our industry and the foreign exchange exposures
of our competitors.
During 2013, the U.S. dollar depreciated against the euro by 7.1%.
The weaker U.S. dollar in 2013 had a negative impact on our net
sales expressed in euro, as approximately 32% of our net sales
are generated in U.S. dollars and currencies closely following the
U.S. dollar. The depreciation of the U.S. dollar also contributed to
lower cost of sales and operating expenses, as approximately 26% of
our cost base was in U.S. dollars and currencies closely following the
U.S. dollar. In total, before hedging, the movement of the U.S. dollar
against the euro had a negative effect on our operating profit in 2013.
The majority of the impact of the U.S. dollar and the Japanese yen
depreciation against the euro on our operating result was, however,
mitigated through hedging.
Significant changes in exchange rates may also impact our
competitive position and related price pressures through their
impact on our competitors. Foreign exchange risk is described
further in Note 35, Financial and capital risk management, of the
consolidated financial statements.
Seasonality
Our sales are affected by seasonality in the network operators’
planning, budgeting and spending cycles, with generally higher sales
in the fourth quarter compared to the first quarter of the following year.
In 2013, the overall volatility of the global currency markets has
remained broadly around the same level as in 2012. Out of our
significant non-euro transaction currencies, however, the Japanese
yen depreciated significantly during 2013 compared to the rate at the
end of 2012. Overall, hedging costs remained relatively low in 2013
due to the low interest rate environment globally.
Annual Report 2013
27
28
Operating and Financial Review
Key financials
The following table sets forth the summary financial information for each of the years ended December 31, 2013, 2012 and 2011 from
continuing operations. This data has been derived from our consolidated financial statements, which are included in this Annual Report.
From continuing operations
EURm, except percentage data
Net sales
Gross profit
Gross profit before specific items
Gross margin before specific items
Operating expenses
Operating expenses before specific items
Operating profit/(loss) (EBIT)
Operating profit/(loss) (EBIT) margin
EBIT before specific items
EBIT before specific items margin
Profit/(loss) for the period
Depreciation and amortization (excluding PPA)
EBITDA before specific items
EBITDA before specific items margin
2013
2012
11 172
3 925
4 095
36.7%
(3 374)
(2 990)
551
4.9%
1 105
9.9%
148
208
1 313
11.8%
13 372
3 455
4 108
30.7%
(4 192)
(3 282)
(737)
(5.5)%
826
6.2%
(1 378)
272
1 098
8.2%
YoY
movement
2011
(16.5)%
13.6%
(0.3)%
6.0pp
(19.5)%
(8.9)%
174.8%
10.4pp
33.8%
3.7pp
110.7%
(23.5)%
19.6%
3.6pp
13 645
3 708
3 759
27.5%
(3 914)
(3 421)
(206)
(1.5)%
338
2.5%
(609)
305
643
4.7%
YoY
movement
(2.0)%
(6.8)%
9.3%
3.2pp
7.1%
(4.1)%
257.8%
(4.0)pp
144.4%
3.7pp
126.3%
(10.8)%
70.8%
3.5pp
The before specific items financial measures exclude specific items for all periods: restructuring charges, country/contract exits charges, merger related charges, purchase
price accounting related charges and other one-time charges. Refer to Note 2, Specific items, of the consolidated financial statements.
References to EBITDA are to profit/(loss) for the period from continuing operations, before income tax expense, financial income and expenses, depreciation, amortization and share of results of associates. Accordingly, EBITDA can be extracted from the consolidated financial statements by taking profit/(loss) for the period and adding back income tax expense, financial income and expenses, depreciation, amortization and share of results of associates.
We are not presenting EBITDA or EBITDA-based measures as measures of our results of operations. EBITDA and EBITDA-based measures have important limitations
as an analytical tool, and they should not be considered in isolation or as substitutes for analysis of our results of operations.
Percentage point changes are denoted by ‘pp’ in the above table.
The 2012 and 2011 financial information reflect the retrospective application of IAS 19R, Employee Benefits. For more information on the adjustments, refer to Note 8,
Pensions, in the consolidated financial statements.
Nokia Solutions and Networks
Operating and Financial Review
The following table sets forth the summary unaudited, condensed, consolidated quarterly financial information for each of the quarters in the years
ended December 31, 2012 and 2013 from continuing operations. This information has been derived from our unaudited quarterly financial information,
which is not included in this Annual Report, and should be read in conjunction with our consolidated financial statements and the related notes.
From continuing operations
EURm, except percentage data
June 30,
2012
Sept 30,
2012
Dec 31,
2012
March 31,
2013
June 30,
2013
Sept 30,
2013
Dec 31,
2013
2 862
414
762
26.6%
(1 403)
(888)
(989)
(34.6)%
(126)
(4.4)%
(1 284)
3 233
780
848
26.2%
(1 005)
(820)
(225)
(7.0)%
28
0.9%
(260)
3 408
1 064
1 105
32.4%
(843)
(762)
221
6.5%
343
10.1%
73
3 869
1 197
1 393
36.0%
(941)
(812)
256
6.6%
581
15.0%
93
2 717
899
919
33.8%
(889)
(717)
10
0.4%
202
7.4%
(136)
2 758
956
1 059
38.4%
(820)
(722)
136
4.9%
337
12.2%
15
2 591
935
949
36.6%
(769)
(732)
166
6.4%
217
8.4%
97
3 106
1 135
1 168
37.6%
(896)
(819)
239
7.7%
349
11.2%
172
76
(50)
(1.7)%
68
96
3.0%
67
410
12.0%
61
642
16.6%
58
260
9.6%
55
392
14.2%
49
266
10.3%
46
395
12.7%
Business review
Net sales
Gross profit
Gross profit before specific items
Gross margin before specific items
Operating expenses
Operating expenses before specific items
Operating (loss)/profit (EBIT)
Operating (loss)/profit (EBIT) margin
EBIT before specific items
EBIT before specific items margin
(Loss)/profit for the period
Depreciation and amortization
(excluding PPA)
EBITDA before specific items
EBITDA before specific items margin
For the three-month period ended (unaudited)
March 31,
2012
The before specific items financial measures exclude specific items for all periods: restructuring charges, country/contract exits charges, merger related charges, purchase
price accounting related charges and other one-time charges. Refer to Note 2, Specific items, of the consolidated financial statements.
References to EBITDA are to profit/(loss) for the period from continuing operations, before income tax expense, financial income and expenses, depreciation, amortization and share of results of associates. Accordingly, EBITDA can be extracted from the consolidated financial statements by taking profit/(loss) for the period and adding back income tax expense, financial income and expenses, depreciation, amortization and share of results of associates.
We are not presenting EBITDA or EBITDA-based measures as measures of our results of operations. EBITDA and EBITDA-based measures have important limitations
as an analytical tool, and they should not be considered in isolation or as substitutes for analysis of our results of operations.
The 2012 financial information reflects the retrospective application of IAS 19R, Employee Benefits. For more information on the adjustments, refer to Note 8, Pensions,
in the consolidated financial statements.
Annual Report 2013
29
30
Operating and Financial Review
Results of operations
Year ended December 31, 2013 compared to year ended December 31, 2012
The following table sets forth selective line items from our consolidated income statement and the percentage of net sales that they represent
for the years ended December 31, 2013 and 2012.
2013
Income statement information:
EURm, except percentage data
Before
specific
items
Specific
items
Net sales
Cost of sales
11 172
(7 077)
–
(170)
4 095
Gross profit
Research and development
expenses
Selling and marketing
expenses
Administrative and general
expenses
Other income
Other expenses
Operating profit/(loss)
Share of results of associates
Financial income
Financial expenses
Other financial results
2012
Percentage of
net sales
Before
specific
items
Specific
items
11 172
(7 247)
100.0%
64.9%
13 372
(9 264)
–
(653)
13 372
(9 917)
100.0%
74.2%
(16.5)%
(26.9)%
(170)
3 925
35.1%
4 108
(653)
3 455
25.8%
13.6%
(1 770)
(47)
(1 817)
16.3%
(1 908)
(208)
(2 116)
15.8%
(14.1)%
(728)
(108)
(836)
7.5%
(885)
(382)
(1 267)
9.5%
(34.0)%
(480)
113
(125)
(134)
6
(101)
(614)
119
(226)
5.5%
1.1%
2.0%
(449)
105
(145)
(242)
–
(78)
(691)
105
(223)
5.2%
0.8%
1.7%
(11.1)%
13.3%
1.3%
1 105
(554)
551
8
20
(104)
(59)
4.9%
826
(1 563)
(737)
8
15
(123)
(199)
5.5%
174.8%
Total
Total
Profit/(loss) before tax
Income tax expense
416
(268)
(1 036)
(342)
Profit/(loss) for the period from
continuing operations
148
(1 378)
(133)
(63)
15
(1 441)
Percentage of
net sales
(%)
change
Discontinued operations
Loss for the year from
discontinued operations
Profit/(loss) for the year
For an analysis of specific items, refer to Note 2, Specific items, of the consolidated financial statements.
The 2012 financial information reflects the retrospective application of IAS 19R, Employee Benefits. For more information on the adjustments, refer to Note 8, Pensions,
in the consolidated financial statements.
Nokia Solutions and Networks
Operating and Financial Review
Selected segment data
The following tables set forth our selected segment data and net sales by geographic area based on customer location for the years ended
December 31, 2013 and 2012.
From continuing operations
EURm, except percentage data
Mobile
Broadband
Global
Services
All other
segments
Total
segments
Other
Total
5 347
420
7.9%
5 753
693
12.0%
55
(24)
(43.6)%
11 155
1 089
17
16
11 172
1 105
9.9%
2012
Net sales
Operating profit/(loss) before specific items
Operating profit/(loss) % before specific items
6 043
490
8.1%
6 929
334
4.8%
365
(33)
(9.0)%
13 337
791
35
35
13 372
826
6.2%
Business review
2013
Net sales
Operating profit/(loss) before specific items
Operating profit/(loss) % before specific items
For an analysis of specific items, refer to Note 2, Specific items, of the consolidated financial statements. The 2012 financial information reflects the retrospective application
of IAS 19R, Employee Benefits. For more information on the adjustments, refer to Note 8, Pensions, in the consolidated financial statements.
Net sales from continuing operations
EURm
2013
2012
Greater China
Japan
India
Asia Pacific
Middle East
Africa
1 191
1 387
641
1 235
644
451
1 276
2 175
734
1 274
682
554
(6.7)%
(36.2)%
(12.7)%
(3.1)%
(5.6)%
(18.6)%
Asia, Middle East and Africa
5 549
6 695
(17.1)%
East Europe
West Europe
South East Europe
Latin America
491
1 639
938
1 249
498
2 093
1 200
1 658
(1.4)%
(21.7)%
(21.8)%
(24.7)%
Europe and Latin America
4 317
5 449
(20.8)%
North America
1 306
1 228
6.4%
11 172
13 372
(16.5)%
Total
(%) change
As of the first quarter of 2013, our Customer Operations team is organized into the three geographical markets demonstrated in the table: Asia, Middle East and Africa
markets covering Greater China, Asia-Pacific, India, Japan, the Middle East and Africa regions; Europe and Latin America markets covering East Europe, West Europe,
South East Europe and Latin America; and North America markets covering both the United States and Canada.
Net sales
Our net sales decreased 16% to EUR 11 172 million in 2013,
compared to EUR 13 372 million in 2012. The year-on-year decline
in our net sales was primarily due to reduced wireless infrastructure
deployment activity affecting both Mobile Broadband and Global
Services, as well as the divestments of businesses not consistent
with our strategic focus, negative foreign exchange impacts, and the
exiting of certain customer contracts and countries.
Annual Report 2013
Mobile Broadband net sales declined 12% to EUR 5 347 million
in 2013, compared to EUR 6 043 million in 2012, as declines in
WCDMA, CDMA and GSM were partially offset by growth in both
FD-LTE and TD-LTE, reflecting the industry shift to 4G technology.
Core network sales declined as a result of the customer focus on
radio technologies.
31
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Operating and Financial Review
Global Services net sales declined 17% to EUR 5 753 million in 2013,
compared to EUR 6 929 million in 2012 primarily due to the exiting of
certain customer contracts and countries as part of our strategy to
focus on more profitable business, as well as a year-on-year decline
in network roll-outs in Japan and Europe.
Gross margin
Our gross margin was 35.1% in 2013, compared to 25.8% in 2012,
driven by improved efficiency in Global Services, an improved
product mix with a greater share of higher margin products,
and the divestment of less profitable businesses.
In Mobile Broadband, gross margin improved in 2013 driven by
an increased software share in the product mix, offset by costs
incurred in anticipation of a technology shift to TD-LTE.
In Global Services, gross margin improved significantly in 2013 due
to the increase in efficiencies as part of our restructuring program
and the exit of certain customer contracts and countries as part
of our strategy to focus on more profitable business.
Operating expenses
Our research and development expenses decreased 14% year-onyear in 2013 to EUR 1 817 million from EUR 2 116 million in 2012,
primarily due to business divestments and reduced investment in
business activities not in line with our focused strategy as well as
increased research and development efficiency, partially offset by
higher investments in business activities in line with our focused
strategy, most notably LTE.
Our sales and marketing expenses decreased 34% year-on-year
in 2013 to EUR 836 million from EUR 1 267 million in 2012, primarily
due to structural cost savings from our transformation and
restructuring program.
Our administrative and general expenses decreased 11% year-onyear in 2013 to EUR 614 million from EUR 691 million in 2012, primarily
due to lower restructuring charges as well as structural cost savings
from our transformation and restructuring program, partially offset
by consultancy fees related to finance and information technology
related projects.
Our other income and expenses decreased in 2013 to an expense
of EUR 107 million from an expense of EUR 118 million in 2012.
Operating margin
Our operating profit in 2013 was EUR 551 million, compared with
an operating loss of EUR 737 million in 2012. Our operating margin
in 2013 was 4.9%, compared with a negative 5.5% in 2012. The
increase in operating profit was primarily a result of an increase in
the operating margin of Global Services and a reduction in costs
associated with our transformation, consisting mainly of
restructuring charges.
We recognized specific items of EUR 554 million and
EUR 1 563 million in 2013 and 2012 respectively, comprised
of restructuring charges, country/contract exit charges, purchase
price accounting (‘PPA’) related charges, and other one-time
charges. The purchase price accounting related items arising from
our formation were fully amortized at the end of the first quarter
of 2013.
The operating profit of Mobile Broadband declined from
EUR 490 million in 2012 to EUR 420 million in 2013, primarily
as a result of lower net sales, which was partially offset by an
improved gross margin and a reduction in operating expenses.
The operating profit of Global Services increased from
EUR 334 million in 2012 to EUR 693 million in 2013, as the increase
in gross margin more than compensated for the decline in net sales.
The operating profit in 2013 was further supported by a reduction
in operating expenses.
Financial income and expenses
In 2013, we incurred a net expense in financial income and expenses
of EUR 143 million compared to a net expense of EUR 307 million
in 2012. Our financial income and expenses consisted of financial
expenses of EUR 104 million (EUR 123 million in 2012), primarily
relating to interest expense on interest-bearing liabilities, and financial
income of EUR 20 million (EUR 15 million in 2012), primarily relating to
interest income on available-for-sale financial instruments. Our other
financial results consisted primarily of net foreign exchange losses of
EUR 59 million (losses of EUR 199 million in 2012). The decrease in
net foreign exchange losses compared to 2012 was mainly due to
reduced negative impact from currencies that could not be hedged.
Income tax expense
We incurred an income tax expense of EUR 268 million in the year
ended December 31, 2013, compared to EUR 342 million in the year
ended December 31, 2012. The income tax expense in 2012 was
higher than 2013 mainly due to a write-off of German deferred tax
assets in 2012.
Our effective tax rate varies significantly due to the non-recognition
of the Finnish deferred tax assets as well as payments of foreign
withholding taxes in certain overseas jurisdictions, for which no
benefit is recorded, and the mix of profitability in our subsidiaries.
We periodically assess our unrecognized deferred tax assets.
At December 31, 2013, we had a total of approximately EUR 1.5 billion
unrecognized net deferred tax assets, of which approximately
EUR 1.3 billion relate to Finland (calculated at 20% tax rate) and have
not been recognized in the consolidated financial statements due to our
history of losses in Finland. The Finnish corporate tax rate was reduced
from 24.5% to 20% from January 1, 2014, which has correspondingly
reduced the amount of unrecognized net deferred tax assets.
Nokia Solutions and Networks
Operating and Financial Review
A significant portion of our Finnish deferred tax assets are indefinite
in nature and available against future Finnish taxable income.
We will continue to closely monitor the realizability of these deferred
tax assets, including assessing future financial performance in
Finland. Should the recent improvements in our financial results
be sustained, we may recognize all or part of the unrecognized
deferred tax asset in the future.
Net profit
Including the restructuring and other one-time charges recorded
in 2013, we reported net profit of EUR 15 million compared to a
net loss of EUR 1 441 million in 2012. In 2013, we incurred a loss
of EUR 133 million in connection with the divestment of our Optical
Networks Business which has been reported as discontinued
operations since December 2012. We reported a net profit of
EUR 148 million for continuing operations compared to a net loss
of EUR 1 378 million in 2012. Our result in 2013 has improved
significantly compared to 2012 primarily due to lower restructuring
related charges and improved profitability.
From continuing operations
Income statement information:
2012
2011
EURm, except percentage data
Before
specific
items
Specific
items
Net sales
Cost of sales
13 372
(9 264)
–
(653)
13 372
(9 917)
4 108
(653)
(1 908)
Gross profit
Research and development
expenses
Selling and marketing
expenses
Administrative and general
expenses
Other income
Other expenses
Operating profit/(loss)
Share of results of associates
Financial income
Financial expenses
Other financial results
Business review
Year ended December 31, 2012 compared to year ended December 31, 2011
The following table sets forth selective line items from our consolidated income statement and the percentage of net sales that they represent
for the years ended December 31, 2012 and 2011.
Before
specific
items
Specific
items
100.0%
74.2%
13 645
(9 886)
–
(51)
13 645
(9 937)
100.0%
72.8%
(2.0)%
(0.2)%
3 455
25.8%
3 759
(51)
3 708
27.2%
(6.8)%
(208)
(2 116)
15.8%
(1 968)
(107)
(2 075)
15.2%
2.0%
(885)
(382)
(1 267)
9.5%
(990)
(330)
(1 320)
9.7%
(4.0)%
(449)
105
(145)
(242)
–
(78)
(691)
105
(223)
5.2%
0.8%
1.7%
(495)
92
(60)
(37)
–
(19)
(532)
92
(79)
3.9%
0.7%
0.6%
29.9%
14.1%
182.3%
826
(1 563)
(737)
8
15
(123)
(199)
5.5%
338
(544)
(206)
(17)
15
(108)
(58)
1.5%
257.8%
Total
Percentage of
net sales
Total
Loss before tax
Income tax expense
(1 036)
(342)
(374)
(235)
Loss for the period from
continuing operations
(1 378)
(609)
(63)
(87)
(1 441)
(696)
Percentage of
net sales
(%)
change
Discontinued operations
Loss for the year from
discontinued operations
Loss for the year
For an analysis of specific items, refer to Note 2, Specific items, of the consolidated financial statements.
The 2012 and 2011 financial information reflect the retrospective application of IAS 19R, Employee Benefits. For more information on the adjustments, refer to Note 8,
Pensions, in the consolidated financial statements.
Annual Report 2013
33
34
Operating and Financial Review
Selected segment data
The following tables set forth our selected segment data and net sales by geographic area based on customer location for the years ended
December 31, 2012 and 2011.
EURm, except percentage data
Mobile
Broadband
Global
Services
All other
segments
Total
segments
Other
Total
2012
Net sales
Operating profit/(loss) before specific items
Operating profit/(loss) % before specific items
6 043
490
8.1%
6 929
334
4.8%
365
(33)
(9.0)%
13 337
791
35
35
13 372
826
6.2%
2011
Net sales
Operating profit/(loss) before specific items
Operating profit/(loss) % before specific items
6 335
216
3.4%
6 737
230
3.4%
573
(108)
(18.8)%
13 645
338
–
–
13 645
338
2.5%
All other segments represent the aggregated results of several businesses that were divested or that were planned to be divested during 2012, with such divestment
expected to be completed during the first half of 2013.
For an analysis of specific items, refer to Note 2, Specific items, of the consolidated financial statements. The 2012 and 2011 financial information reflect the retrospective
application of IAS 19R, Employee Benefits. For more information on the adjustments, refer to Note 8, Pensions, in the consolidated financial statements.
Net sales from continuing operations
EURm
2012
2011
Greater China
Japan
India
Asia Pacific
Middle East
Africa
1 276
2 175
734
1 274
682
554
1 457
1 534
911
1 176
816
579
(12.4)%
41.8%
(19.4)%
8.3%
(16.4)%
(4.3)%
Asia, Middle East and Africa
6 695
6 473
3.4%
East Europe
West Europe
South East Europe
Latin America
498
2 093
1 200
1 658
557
2 379
1 460
1 758
(10.6)%
(12.0)%
(17.8)%
(5.7)%
Europe and Latin America
5 449
6 154
(11.5)%
1 228
1 018
20.6%
13 372
13 645
(2.0)%
North America
Total
Net sales
Year-on-year, our net sales decreased by 2.0% to EUR 13 372 million
in 2012 compared to EUR 13 645 million in 2011. The decrease in our
net sales was primarily due to modifying our structure to align with
our strategy to focus on mobile broadband as we streamlined our
portfolios, divested non-core businesses and exited from lossgenerating and poorly performing contracts and countries. The
decrease in net sales due to the modification of our structure was
partially offset by higher sales of infrastructure equipment and
slightly higher sales of services in the second half of 2012.
(%) change
Of total net sales, Mobile Broadband contributed EUR 6 043 million
in 2012 (EUR 6 335 million in 2011) and Global Services contributed
EUR 6 929 million in 2012 (EUR 6 737 million in 2011).
Net sales in Japan accounted for our largest concentration of net
sales in 2012, representing 16.3% of net sales (11.2% in 2011). Other
regions contributing significant percentages of net sales in 2012
include West Europe, representing 15.7% of net sales (17.4% in 2011),
and Latin America representing 12.4% of net sales (12.9% in 2011).
Nokia Solutions and Networks
Operating and Financial Review
Gross margin
Our gross profit decreased to EUR 3 455 million in 2012, compared
with EUR 3 708 million in 2011, with a gross margin of 25.8% (27.2%
in 2011). The decrease in gross margin was primarily attributable
to specific items recorded in cost of sales which increased to
EUR 653 million in 2012 (EUR 51 million in 2011), due to the recording
of personnel restructuring costs in connection with our restructuring
program and additional costs incurred during the period as we
realigned our customer contract and geographic market portfolio
to terminate certain loss-generating and poorly performing contracts
and to withdraw from certain countries in line with the transformation
and restructuring program. Our gross profit before specific
items increased to EUR 4 108 million in 2012, compared with
EUR 3 759 million in 2011, with a gross margin before specific items
of 30.7% (27.5% in 2011), as a result of our strategy to focus on mobile
broadband and products and services with higher margins and to
exit less profitable contracts and countries, as well as, in the second
half of the year, due to the sale of an unusually large proportion of
higher margin products and software in our priority markets.
Operating expenses
Research and development expenses were EUR 2 116 million in
2012, compared with EUR 2 075 million in 2011. In 2012, research
and development expenses included specific items relating to
restructuring and other related charges of EUR 170 million
(EUR 28 million in 2011) and purchase price accounting related items
of EUR 38 million (EUR 79 million in 2011). In 2012, the restructuring
and related charges related to expenses in connection with the
reduction in our global workforce. In 2012 and 2011, purchase
price accounting charges related to the amortization of finite lived
intangible assets (customer relationships, developed technology,
and licenses to use tradenames and trademarks) recognized in
the purchase price allocation stemming from the Group’s formation
and the subsequent acquisition of the Acquired Motorola Assets.
Research and development expenses before specific items
decreased in 2012 to EUR 1 908 million and 14.3% of net sales
Annual Report 2013
compared to EUR 1 968 million and 14.4% of net sales in 2011 due
to the divestment of our non-core assets and the elimination of
related research and development expenses and our cost control
initiatives relating to the transformation and restructuring program
that was implemented in 2012 whereby we decreased investment in
previous generation radio technologies and non-core portfolio areas.
Selling and marketing expenses decreased by 4.0% to
EUR 1 267 million, in 2012, compared with EUR 1 320 million in
2011. In 2012, selling and marketing expenses included specific
items relating to restructuring and other charges of EUR 116 million
(EUR 22 million in 2011) and purchase price accounting related
items of EUR 266 million (EUR 308 million in 2011).
In 2012, restructuring and related charges were largely driven by
expenses in connection with the reduction in our global workforce.
In both 2012 and 2011, purchase price accounting charges related
to the amortization of finite lived intangible assets (customer
relationships, developed technology, and licenses to use trade
names and trademarks) recognized in the purchase price allocation
stemming from the Group’s formation and the subsequent
acquisition of the Acquired Motorola Assets. Selling and marketing
expenses before specific items were EUR 885 million in 2012
compared to EUR 990 million in 2011, representing 6.6% and 7.3%
of net sales, respectively. This decrease in selling and marketing
expenses was primarily related to our implementation of measures
to reduce discretionary expenditure, as well as overall lower selling
and marketing activities due to the impact of the transformation and
restructuring program implemented in 2012.
Business review
Net sales in 2012 were driven primarily by strength in our Asia,
Middle East and Africa regions, most notably Japan, which saw an
increase in net sales of 41.8% due to strong growth in sales of both
infrastructure equipment and services as a result of the 4G (LTE)
roll-outs by mobile operators in Japan, which represented a
combination of organic growth and the impact of the Acquired
Motorola Assets. These positive developments were partially offset
by decreases in net sales in India and Greater China as a result of
reduced operator spending. Our net sales in our North America
region also increased 20.6% to EUR 1 228 million, largely driven
by the 4G (LTE) network roll-out with our customer T-Mobile USA.
Overall growth in net sales in these regions was offset by lower sales
in our Europe and Latin America region, which overall decreased
by 11.5% in 2012 compared to 2011, due to a total decline in net sales
in Europe of 13.8%, principally as a result of lower sales in services
and infrastructure equipment.
Administrative and general expenses were EUR 691 million in 2012,
compared with EUR 532 million in the same period of 2011. In 2012,
administrative and general expenses included restructuring charges
and other one-time charges of EUR 242 million (EUR 36 million in the
same period of 2011) and purchase price accounting related items of
EUR 0 million (EUR 1 million in the same period in 2011). In 2012, the
restructuring and related charges related to expenses in connection
with the reduction in our global workforce, exiting certain
underperforming customer contracts and the withdrawal and closure
of real estate sites as well as other charges consisting of consultancy
fees in connection with the restructuring program. Administrative and
general expenses before specific items decreased slightly in 2012 to
EUR 449 million and 3.4% of net sales compared to EUR 495 million
and 3.6% of net sales in 2011. This decrease in administrative and
general expenses was primarily due to the restructuring efforts
undertaken in connection with the transformation and restructuring
program implemented in 2012.
35
36
Operating and Financial Review
Operating margin
We had an operating loss of EUR 737 million in 2012, compared with
an operating loss of EUR 206 million in 2011, resulting in an operating
margin of negative 5.5% and negative 1.5% in 2012 and 2011,
respectively. Before specific items, we had an operating profit of
EUR 826 million in 2012 compared to an operating profit of
EUR 338 million in 2011. This increase in operating profit before specific
items, year-on-year, was primarily attributable to our change in strategy
and increased sales of higher margin products, and to the reductions in
expenses in connection with our cost control initiatives relating to the
restructuring and transformation program implemented in 2012, as
described above.
Financial income and expenses
We incurred a net expense in financial income and expenses
of EUR 307 million in 2012, compared with a net expense of
EUR 151 million in 2011. In the year ended December 31, 2012,
our financial income and expenses consisted of financial income
of EUR 15 million offset by financial expenses of EUR 123 million,
primarily relating to interest expense on loans and credit facilities,
and net foreign exchange losses of EUR 199 million. In the year
ended December 31, 2011, our financial income and expenses
consisted of financial income of EUR 15 million, offset by financial
expenses of EUR 108 million, primarily relating to interest expense
on loans and credit facilities, and net foreign exchange losses of
EUR 58 million. The increase in net foreign exchange losses of
EUR 141 million was primarily due to currency exposures that
could not be hedged.
Income tax expense
We had an income tax expense of EUR 342 million in 2012,
compared with an income tax expense of EUR 235 million in 2011.
Despite incurring losses before tax of EUR 1 036 million in 2012 and
EUR 374 million in 2011, we recorded an expense during 2012 and
2011 primarily due to the increase in valuation allowance on deferred
tax assets of EUR 640 million and EUR 265 million, respectively,
related to Finnish and German tax losses and temporary differences
in 2012 and Finnish tax losses and temporary differences in 2011
for which we were unable to recognize deferred tax benefits. Our
effective income tax expense was also affected by the various tax
laws in effect in the different jurisdictions in which we earn revenue.
The increase in income tax expense also reflects changes in profit
mix between jurisdictions from year to year.
Transformation and restructuring program
Restructuring related charges and cash flows
In November 2011, we announced our strategy to focus on mobile
broadband and services. We also announced an extensive global
restructuring program, targeting the reduction of our annualized
operating expenses and production overheads, excluding specific
items, by EUR 1 billion by the end of 2013, compared to the end of 2011.
In January 2013, this target was raised to EUR 1.5 billion, and in July 2013
this target was further raised to ‘more than EUR 1.5 billion’. While these
savings were expected to come largely from organizational streamlining,
the program also targeted areas such as real estate, information
technology, product and service procurement costs, overall general
and administrative expenses, and a significant reduction of suppliers
in order to further lower costs and improve quality.
We achieved a reduction in our annualized operating expenses and
production overheads, excluding specific items, of more than
EUR 1.5 billion at the end of 2013, compared to the end of 2011.
At December 31, 2013, restructuring related charges amounted
to approximately EUR 550 million and the related cash outflows were
approximately EUR 600 million. At December 31, 2013, since the
commencement of the global restructuring program, cumulative
restructuring charges amounted to approximately EUR 1 850 million,
and cumulative related cash outflows amounted to approximately
EUR 1 250 million. We estimate total restructuring related
charges and cash outflows of approximately EUR 1.95 billion and
EUR 1.70 billion, respectively, by the end of 2014. This is an update to
the earlier estimate of approximately EUR 1.8 billion for restructuring
related charges and approximately EUR 1.6 billion for restructuring
related cash outflows.
Non-cash charges and timing differences account for the differences
between the above charges and the corresponding cash outflows.
Changes in estimates of timing or amounts of costs to be incurred
and associated cash flows may become necessary as the
transformation and restructuring program is being completed.
At the end of 2013, we had 48 628 employees, a reduction from
58 411 employees compared to the end of 2012, and 73 686
employees compared to the end of 2011.
Disposals treated as discontinued operations
On December 1, 2012, we reached a formal agreement with
Marlin Equity Partners for the sale of our Optical Networks Business
comprising the complete Optical Networks product portfolio,
services offering and existing customer contracts (together, the
‘Optical Networks Business’). The transaction closed on May 6, 2013
and a loss on disposal of EUR 115 million was recognized following
derecognition of the assets and liabilities transferred of EUR 75
million and payment of EUR 40 million cash to Marlin Equity Partners.
Nokia Solutions and Networks
Operating and Financial Review
In accordance with IFRS, we have presented the Optical Networks
Business as discontinued operations in the consolidated financial
statements for the years ended December 31, 2013 and 2012, and
have re-presented the comparative results for the year ended
December 31, 2011 (refer to Note 12, Acquisitions and disposals,
of the consolidated financial statements). For the year ended
December 31, 2013 the Optical Networks Business generated net
sales of EUR 110 million (EUR 407 million in 2012 and EUR 396 million
in 2011) and incurred a net loss of EUR 133 million (losses of
EUR 63 million in 2012 and EUR 87 million in 2011).
Certain of our subsidiaries operate in jurisdictions highly regulated
by local central banks or international regulations, such as Iran,
Pakistan, Venezuela and Uzbekistan. In these countries, the ability
of our subsidiaries to transfer funds to their parent companies or our
Group treasury in the form of cash dividends, loans or advances is
very limited. We estimate that the funds retained in these countries for
relatively long periods of time have fluctuated between EUR 50 million
and EUR 150 million in the periods under review. We believe that
these limitations have not had and are not expected to have a
material impact on our ability to meet our cash obligations.
Business review
Disposals not treated as discontinued operations
On December 5, 2012, we entered into an agreement for the sale
of our Business Support Systems business to Redknee Solutions
Inc. The transaction closed on March 29, 2013. The transaction
comprised the core Business Support Systems assets and
operations. Assets, amounting to EUR 26 million, and liabilities,
amounting to EUR 17 million, were disposed of at the date of closing.
Consideration received on the disposal amounted to EUR 10 million
in cash. The loss on disposal was EUR 1 million, after the deduction
of EUR 2 million of other contractual net expenses. The Business
Support Systems business is reported in ‘All other segments’ in
our segment information. Additionally, we incurred charges of
EUR 41 million in 2013 in connection with settlements and other
expenses arising from the disposals of the WiMax, microwave
transport and fixed line broadband access businesses, effected
in 2012.
Liquidity and capital resources
Liquidity describes the ability of a company to generate sufficient
cash flows to meet the cash requirements of its business operations,
including working capital needs, capital expenditures, debt service
obligations, other commitments, and contractual obligations. Our
primary sources of liquidity are provided by our cash from operations,
long- and short-term financing arrangements, and historical
shareholder support. Our liquidity requirements arise primarily to fund
our future working capital needs, capital expenditures, research and
development expenditures, and to meet our debt service obligations.
When we dispose of businesses, gains and losses recorded at the
date of disposal may change depending on the outcome of post
closing settlement negotiations.
Financial position
Non-current assets decreased from EUR 1.7 billion at December
31, 2012 to EUR 1.5 billion at December 31, 2013. The decrease
primarily resulted from depreciation and amortization charges,
partially offset by purchases of plant, property and equipment.
Current assets decreased from EUR 8.6 billion at December 31,
2012 to EUR 7.3 billion at December 31, 2013 due to a reduction
in accounts receivable and inventories. The reduction in accounts
receivable was due to lower business volumes in 2013 as well as
cash collection. The reduction in inventories was the result of
effective inventory management during the year. Additionally,
we have ongoing sale of receivables arrangements. These are
also reflected in the cash position.
Non-current liabilities decreased from EUR 1.4 billion at December 31,
2012 to EUR 1.3 billion at December 31, 2013. Current liabilities
decreased from EUR 6.6 billion at December 31, 2012 to
EUR 5.2 billion at December 31, 2013 mainly due to reductions
in accrued expenses and accounts payable, due to lower
business volumes in 2013.
Annual Report 2013
37
38
Operating and Financial Review
Cash flows
The following table sets forth information regarding our cash flows from continuing and discontinued operations for the years presented:
EURm
2013
2012
2011
Statement of cash flows information:
Net cash from operating activities1
Net cash used in investing activities
Net cash (used in)/from financing activities
Net increase in cash and cash equivalents
Free cash flow2
Capital expenditures3
(Increase)/decrease in net working capital1
765
(182)
(134)
351
582
(164)
(282)
1 628
(261)
(520)
805
1 357
(216)
984
323
(989)
1 155
415
(668)
(303)
15
Total cash and other liquid assets4
2 769
2 420
1 626
Net cash and other liquid assets
1 678
1 277
21
The 2012 and 2011 financial information reflect the retrospective application of IAS 19R, Employee Benefits.
Free cash flow represents the sum of net cash from operating activities and net cash used in investing activities less proceeds from/purchases of current available-for-sale
investments, liquid assets. The proceeds from/purchases of current available-for-sale investments, liquid assets are presented in the consolidated statement of cash flows.
This component has been included in our definition of free cash flow in 2013 and the 2012 and 2011 comparatives have been updated accordingly.
3
Capital expenditures represent purchases of property, plant and equipment and intangible assets.
4
Includes EUR 76 million (EUR 2 million in 2012 and EUR 0 million in 2011) cash held temporarily due to the divested businesses where the Group continues to perform
services within a contractually defined scope for a specified timeframe. The amount also includes EUR 7 million (EUR 8 million in 2012 and EUR 21 million in 2011) related to
the sale of receivable arrangements in China.
1
2
Year ended December 31, 2013
In 2013, we generated free cash flow of EUR 582 million, which
included approximately EUR 600 million of restructuring related
outflows. Our net cash from operating activities was EUR 765 million
for the year ended December 31, 2013.
Our net working capital increased by EUR 282 million. This resulted
from a decrease in liabilities of EUR 1 447 million including reductions
in accrued expenses and accounts payable. The decrease in
liabilities was partially offset by decreases in receivables and
inventories. The reduction in accounts receivable which resulted
in cash inflows of EUR 1 044 million was due to lower business
volumes in 2013 as well as cash collection. Additionally, we had
ongoing sales of receivables arrangements. The reduction in
inventories during the year provided cash inflows of EUR 121 million
and was the result of effective inventory management during the year.
Our net cash used in investing activities was EUR 182 million for
the year ended December 31, 2013. This was primarily attributable
to cash used for capital expenditures of EUR 164 million and
payments in connection with the disposal of businesses and
Group companies of EUR 63 million during the period. We received
cash inflows of EUR 47 million primarily from the sale of property,
plant and equipment.
Our net cash used in financing activities was EUR 134 million for
the year ended December 31, 2013. In March 2013, we issued
EUR 450 million of 6.75% Senior Notes due April 2018 and
EUR 350 million of 7.125% Senior Notes due April 2020, both at
issue price of 100%. The net proceeds of EUR 779 million from the
bond issuance were used primarily to prepay the EUR 600 million
forward starting term loan.
Year ended December 31, 2012
Our net cash from operating activities was EUR 1 628 million for
the year ended December 31, 2012. Although we recorded a loss for
the year of EUR 1 441 million, after adjusting for non-cash items, such
as depreciation and amortization, which was EUR 587 million, and
restructuring and other specific items, which were EUR 1 162 million,
we had cash flows from operating activities before changes in
working capital of EUR 1 161 million.
The change in our net working capital provided cash flows of
EUR 984 million, which was a net reduction in working capital for
the year. The reduction in net working capital resulted primarily from
our management of accounts receivable which provided cash flow
of EUR 789 million primarily due to improved cash collections and
an increase in sales of receivables during the year which further
enhanced our cash collection efforts. A reduction in inventories
during the year provided cash inflows of EUR 198 and was the result
of effective inventory management during the year.
Nokia Solutions and Networks
Operating and Financial Review
Our net cash used in investing activities was EUR 261 million for the
year ended December 31, 2012. This was primarily attributable to
cash used for capital expenditures of EUR 216 million and payments
in connection with the disposal of businesses and Group companies
of EUR 125 million during the period. These cash outflows were
partially offset by cash inflows of EUR 64 million primarily in
connection with a purchase price adjustment relating to the Motorola
Solutions Acquisition, net of acquired cash and proceeds from
investments and other miscellaneous cash outflows and inflows.
Year ended December 31, 2011
Our net cash from operating activities was EUR 323 million for the
year ended December 31, 2011. Although we recorded a loss for
the year of EUR 696 million, after adjusting for non-cash items
such as depreciation and amortization, which was EUR 711 million,
and other non-cash items such as restructuring and other specific
items, income taxes and financial income and expenses, which
totalled EUR 448 million, we had cash flows from operating
activities before changes in working capital of EUR 564 million.
The change in our net working capital provided cash flows of
EUR 15 million, which was a net reduction in working capital for
the year. The reduction in net working capital resulted primarily
from our management and sales of accounts receivable, which
provided cash flow of EUR 529 million during the year but was
offset by the reduction in interest-free liabilities of EUR 470 million,
which was primarily attributable to a decrease in accrued expenses
relating mainly to a reduction in our deferred revenue balance from
the prior year, and an increase in inventories of EUR 44 million.
Capital expenditures
Cash used for capital expenditures related to the purchases of
property, plant and equipment and intangible assets, and primarily
of (a) cash used for the maintenance, upkeep and replacement of
assets in connection with the production and testing of our products
(‘capital expenditure’); (b) cash used for development and testing of
new products in order to increase sales and profitability (‘R&D capital
expenditure’); (c) cash used in our Global Services business unit
(‘Global Services expenditure’); and (d) other capital expenditures
for real estate and central functions (‘Other capital expenditure’).
Business review
Our net cash used in financing activities was EUR 520 million for the year
ended December 31, 2012. During the year we repaid EUR 264 million
of long-term interest-bearing liabilities, primarily consisting of scheduled
repayments of EUR 100 million of our EIB Facility, EUR 44 million
scheduled repayments of our Finnish Pension Loan, the voluntary
prepayment of EUR 118 million, and termination of our SEB Loan.
During 2012, we also repaid EUR 244 million of short-term borrowings,
primarily consisting of partial repayment of our Term Loan, refinancing
of our South African preference share subscription agreement, and
reduction of borrowings under the Commercial Paper Program and
local borrowings on committed and uncommitted bases.
Our net cash from financing activities was EUR 1 155 million for the
year ended December 31, 2011. During 2011, we received proceeds
from our shareholders of EUR 1 000 million in relation to issuing
cumulative preferred shares, which represented the majority of our
financing activities. We also received net proceeds from short-term
borrowings of EUR 232 million primarily from the EUR 2 000 million
revolving credit facility from 2009. During 2011, we also made
repayments of EUR 48 million of long-term interest-bearing
liabilities, primarily from the Finnish Pension Loan, and payments
of EUR 29 million in dividends to non-controlling interests.
Investments in 2011 included the development of a new generation
of radio platforms, the Multiradio generation, and associated
infrastructure software, which required significant initial investments.
In 2012, our focus on Mobile Broadband resulted in increased capital
expenditure on new technologies offset by a reduction in investments
in non-core areas, thus leading to a reduction in overall capital
expenditure. In 2013, this trend continued as we continued to focus
on new technologies such as LTE and small cells.
For the year ended
December 31
EURm
2013
2012
2011
Capital expenditure
R&D capital expenditure
Global services expenditure
Other capital expenditure
14
103
11
36
20
113
21
62
48
138
27
90
Total
164
216
303
Our net cash used in investing activities was EUR 989 million
for the year ended December 31, 2011. In connection with the
Motorola Solutions Acquisition, we had a cash outflow, net of
acquired cash received, of EUR 781 million. In addition, cash used
for capital expenditures for the period resulted in a cash outflow of
EUR 303 million. These outflows were partially offset by proceeds
from short-term and other long-term loan receivables and proceeds
from the sale of property, plant and equipment and intangible assets.
Annual Report 2013
39
40
Operating and Financial Review
Contractual obligations
The following table sets forth our material contractual obligations
at December 31, 2013:
The following table sets forth our total customer financing,
outstanding and committed for the years indicated.
At December 31
EURm
Total
Less
than
1 year
Bond 2018 (EUR 450 million 6.75%)1
Bond 2020 (EUR 350 million 7.125%)1
European Investment Bank
Nordic Investment Bank
Finnish Pension Loan
Firstrand Bank Limited
Commercial Paper Program
Differences between bond nominal
and carrying values
Operating leases
Purchase commitments2
Other obligations
450
350
50
20
88
35
25
–
–
25
16
44
–
25
450
–
25
4
44
35
–
–
350
–
–
–
–
–
(18)
398
756
91
–
112
593
85
(10)
179
163
6
(8)
107
–
–
2 245
900
896
449
Total
1-5
years
More
than
5 years
The bonds are listed on the Luxembourg Stock Exchange.
Purchase commitments relate to commitments from service agreements,
outsourcing arrangements and inventory purchase obligations, primarily
for purchases in 2014 through to 2015.
1
2
In addition to the loans and borrowings included in the above table,
we have an undrawn EUR 750 million revolving credit facility at
December 31, 2013 (refer to Note 28, Loans and borrowings in
the consolidated financial statements).
Structured finance
Structured finance includes customer financing and other third-party
financing. Network operators in some markets sometimes require
their suppliers, including us, to arrange, facilitate or provide long-term
financing as a condition to obstaining infrastructure projects.
Credit markets in general have been tight since 2009. Requests for
customer financing and especially extended payment terms have
remained at a reasonably high level; however, during 2013 the
amount of financing provided directly to our customers continued
to decrease. We do not currently intend to significantly increase
financing directly to our customers, which may have an adverse
effect on our ability to compete successfully for their business.
Rather, as a strategic market requirement, we plan to continue to
arrange and facilitate financing, typically supported by export credit
or guarantee agencies, and provide extended payment terms to
a number of customers. Extended payment terms may continue
to result in a material aggregate amount of trade credits, but the
associated risk is mitigated by the fact that the portfolio relates
to a variety of customers.
EURm
2013
2012
2011
Financing commitments
Outstanding long-term loans (net of
allowances and write-offs)
Current portion of outstanding long-term
loans (net of allowances and write-offs)
25
34
86
10
39
60
29
35
54
Total
64
108
200
In 2013, our total customer financing, outstanding and committed,
decreased to EUR 64 million from EUR 108 million in 2012 and
primarily consisted of outstanding short-term and long-term loans to
network operators. In 2012, our total customer financing, outstanding
and committed, decreased to EUR 108 million from EUR 200 million
in 2011 and primarily consisted of outstanding long-term loans to
network operations.
We continue to make arrangements with financial institutions
and investors to sell the credit risk that we have incurred from the
commitments and outstanding loans we have made. Should the
demand for customer finance increase in the future, we intend to
continue mitigation of our total structured financing exposure, market
conditions permitting. In the years ended December 31, 2013, 2012
and 2011, we had no material bad debt allowances or write-offs.
We expect our structured financing commitments to be financed
mainly through the capital markets as well as through cash flow
from operations.
The structured financing commitments are available under loan
facilities mainly negotiated with mobile operator customers to fund
capital expenditure relating to the purchase of our network
infrastructure equipment and services. Availability of the amounts is
dependent upon the borrowers’ continuing compliance with stated
financial and operational covenants and compliance with other
administrative terms of the facilities.
Contingent obligations and liabilities
At December 31, 2013, guarantees provided to certain customers
in the form of bank guarantees or corporate guarantees issued
by some of our entities were EUR 723 million (EUR 864 million
at December 31, 2012), including commercial guarantees of
EUR 463 million (EUR 598 million at December 31, 2012). These
instruments entitle the customer to claim payment as compensation
for non-performance of our obligations under network infrastructure
supply agreements.
Nokia Solutions and Networks
Operating and Financial Review
At December 31, 2013, other guarantees on behalf of other
companies were EUR 55 million (EUR 11 million at December 31,
2012). These guarantees represented commercial guarantees
issued on behalf of third parties. The increase in volume is mainly
due to the transfer of guarantees in connection with the disposal
of certain businesses where contractual risks and revenues have
been transferred, but some of the commercial guarantees have
not yet been re-assigned legally.
Critical accounting policies and estimates
The preparation of financial statements in conformity with IFRS
requires the application of judgment by management in selecting
appropriate assumptions for calculating financial estimates, which
inherently contain some degree of uncertainty. Management
bases its estimates on historical experience, expected outcomes
and various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for
making judgments about the reported carrying values of assets and
liabilities and the reported amounts of revenues and expenses that
may not be readily apparent from other sources. We will revise
material estimates if changes occur in the circumstances on which
an estimate was based or as a result of new information or more
experience. Actual results may differ from these estimates under
different assumptions or conditions.
We believe that the estimates, assumptions and judgments involved
in the following accounting policies represent the most significant
areas of estimation uncertainty and critical judgments that may have
an impact on our financial information (refer to Note 1, Accounting
principles, of the consolidated financial statements).
Revenue recognition
The majority of NSN’s (the Group) sales are recognized when the
significant risks and rewards of ownership have transferred to the
buyer, continuing managerial involvement usually associated with
ownership and effective control has ceased, and the amount of
revenue can be measured reliably, it is probable that the economic
benefits associated with the transaction will flow to the Group and
the costs incurred or to be incurred in respect of the transaction can
be measured reliably. Sales may materially change if management’s
assessment of such criteria changes.
Annual Report 2013
Business review
Off-balance sheet arrangements
We have no material off-balance sheet arrangements that have, or
are reasonably likely to have, a current or future effect on our financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources that are material to investors.
The Group enters into transactions involving multiple components
consisting of any combination of hardware, services and software.
Within multiple element arrangements, separate components are
identified and accounted for based on the nature and fair value of
those components and considering the economic substance of
the entire arrangement. Revenue is allocated to each separately
identifiable component based on the relative fair value of each
component. The Group determines the fair value of each
component by taking into consideration factors such as the price
of the component when sold separately and the component cost
plus a reasonable margin when price references are not available.
This determination of the fair value and allocation thereof to each
separately identifiable component of a transaction requires the use
of estimates and judgment which may have a significant impact on
the timing and amount of revenue recognized for the period.
Revenue from contracts involving solutions achieved through
the modification of complex telecommunications equipment
is recognized on the percentage of completion basis when the
outcome of the contract can be estimated reliably. Recognized
revenues and profits are subject to revisions during the project
in the event that the assumptions regarding the overall project
outcome are revised. Current sales and profit estimates for projects
may materially change due to the early stage of a long-term project,
new technology, changes in the project scope, changes in costs,
changes in timing, changes in customers’ plans, the realization of
penalties, and other corresponding factors which may have a
significant impact on the timing and amount of revenue recognition.
The Group’s contract sales recognized under percentage
completion accounting were EUR 1 012 million, EUR 3 431 million
and EUR 4 769 million in the years ended December 31, 2013, 2012
and 2011, respectively (refer to Note 4, Revenue recognition, of the
consolidated financial statements).
Pensions
The determination of pension obligations and expenses for defined
benefit pension plans is dependent on the Group’s selection of
certain assumptions used by actuaries in calculating such amounts.
Those assumptions include, among others, the discount rate,
future mortality rate, the expected long-term rate of return on plan
assets and the annual rate of increase in future compensation levels.
A portion of plan assets is invested in equity securities, which
are subject to equity market volatility. Changes in assumptions
and actuarial conditions may materially affect the pension obligation
and future expense (refer to Note 8, Pensions, of the consolidated
financial statements).
41
42
Operating and Financial Review
Income taxes
Management judgment is required in determining current tax
expense, uncertain tax positions, deferred tax assets and
liabilities and the extent to which deferred tax assets can be
recognized. Each reporting period deferred tax assets are assessed
for realizability and when circumstances indicate it is no longer
probable that deferred tax assets will be utilized, they are adjusted
as necessary.
At December 31, 2013 the Group had approximately EUR 1.5 billion
of net deferred tax assets that have not been recognized in the
consolidated financial statements, of which EUR 1.3 billion relate
to Finland (calculated at the Finnish corporate tax rate of 20%).
A significant portion of the Group’s Finnish deferred tax assets
are indefinite in nature and available against future Finnish taxable
income. The Group will continue to closely monitor the realizability
of these deferred tax assets, including assessing future financial
performance in Finland.
Liabilities for uncertain tax positions are recorded based on
estimates and assumptions when it is more likely than not that certain
positions will be challenged and may not be fully sustainable upon
review by tax authorities. Furthermore, the Group has ongoing tax
investigations in multiple jurisdictions. If the final outcome of these
matters differs from the amounts initially recorded, differences
may impact the income tax expense in the period in which such
determination is made. Refer to Note 14, Income tax expense, and
Note 19, Deferred taxes, of the consolidated financial statements.
Business combinations
The Group applies the acquisition method of accounting to account
for acquisitions of separate entities or businesses. The consideration
transferred in a business combination is measured as the aggregate
of the fair values of the assets transferred, liabilities incurred towards
the former owners of the acquired business and equity instruments
issued. Identifiable assets acquired and liabilities assumed by the
Group are measured separately at their fair values as of the
acquisition date. Non-controlling interests in the acquired business
are measured separately based on their proportionate share of the
identifiable net assets of the acquired business. The excess of the
aggregate of the consideration transferred over the acquisition date
fair values of the identifiable net assets acquired is recorded as
goodwill. The determination and allocation of fair values to the
identifiable assets acquired and liabilities assumed is based on
various valuation assumptions requiring management judgment.
Actual results may differ from the forecasted amounts and the
difference could be material; refer to Note 12, Acquisitions and
disposals, of the consolidated financial statements.
Assessment of the recoverability of long-lived
and intangible assets and goodwill
The recoverable amounts (the higher of fair value less costs of
disposal and value in use) for long-lived assets, intangible assets
and goodwill have been determined based on the expected future
cash flows attributable to the asset or cash-generating units,
discounted to present value. The key assumptions applied in the
determination of the recoverable amount include the discount rate,
length of the explicit forecast period and estimated growth rates,
profit margins, and the level of operational and capital investment.
Amounts estimated could differ materially from what will actually
occur in the future. No goodwill impairment losses were recorded
in the years ended December 31, 2013, 2012 and 2011; refer to
Note 13, Impairment, of the consolidated financial statements.
Fair value of derivatives and other financial instruments
The fair value of financial instruments that are not traded in an active
market (for example, unlisted equities and embedded derivatives)
is determined using various valuation techniques. The Group uses
judgment to select an appropriate valuation methodology as well
as underlying assumptions based on existing market practices and
conditions. Changes in these assumptions may cause the Group to
recognize impairments or losses in future periods. Refer to Note 20,
Fair value of financial instruments; Note 21, Derivative financial
instruments; and Note 35, Financial and capital risk management,
of the consolidated financial statements.
Customer financing
The Group has provided a limited number of customer financing
arrangements and agreed extended payment terms with selected
customers. Should the actual financial position of the customers or
general economic conditions differ from assumptions, the ultimate
collectability of such financing and trade credits may be required to
be reassessed, which could result in a write-down of these balances
and thus negatively impact future profits. The Group endeavors to
mitigate this risk through the transfer of its rights to the cash collected
from these arrangements to third-party financial institutions on
a non-recourse basis in exchange for an upfront cash payment.
Allowances for doubtful accounts
The Group maintains allowances for doubtful accounts for estimated
losses resulting from the subsequent inability of customers to make
the required payments. If the financial conditions of customers were
to deteriorate, reducing their ability to make payments, additional
allowances may be required. Based on these estimates and
assumptions the allowance for doubtful accounts is EUR 114 million
(EUR 120 million in 2012). Refer to Note 23, Allowances for doubtful
accounts, of the consolidated financial statements.
Nokia Solutions and Networks
Operating and Financial Review
Inventory related allowances
The Group periodically reviews inventory for excess amounts,
obsolescence and declines in net realisable value below cost and
records an allowance against the inventory balance for any such
declines. These reviews require management to estimate future
demand for products. Possible changes in these estimates could
result in revisions to the valuation of inventory in future periods.
Based on these estimates and assumptions, the allowance for
excess and obsolete inventory is EUR 175 million (EUR 238 million
in 2012). Refer to Note 22, Inventories, of the consolidated
financial statements.
Restructuring provisions
The Group records a provision for the estimated future cost related
to restructuring programs. The restructuring provision is based on
management’s best estimate. The estimate is based on approved
restructuring programs or past history of restructuring programs
in calculating the termination costs of affected employees.
Restructuring costs primarily relate to personnel restructuring and
changes in estimates of timing or amounts of costs to be incurred
may become necessary as the restructuring program is
implemented. Based on these estimates and assumptions, the
restructuring provision is EUR 437 million (EUR 568 million in 2012).
Refer to Note 29, Provisions, of the consolidated financial statements.
Business review
Provisions
Provisions are recognized when the Group has a present legal
or constructive obligation as a result of past events; it is probable
that an outflow of resources will be required to settle the obligation
and a reliable estimate of the amount can be made.
Warranty provisions
The Group provides for the estimated cost of product warranties
at the time revenue is recognized. The Group’s warranty provision
is established based upon best estimates of the amounts necessary
to settle future and existing claims on products sold as of each
statement of financial position date. As new products incorporating
complex technologies are continuously introduced, and as local
laws, regulations and practices may change, changes in these
estimates could result in additional allowances or changes to
recorded allowances required in future periods. Based on these
estimates and assumptions, the warranty provision is EUR 93 million
(EUR 72 million in 2012). Refer to Note 29, Provisions, of the
consolidated financial statements.
Legal contingencies
Legal proceedings covering a wide range of matters are pending
or threatened in various jurisdictions against the Group. Provisions
are recorded for pending litigation when it is determined that an
unfavorable outcome is probable and the amount of loss can
be reasonably estimated. Due to the inherent uncertain nature
of litigation, the ultimate outcome or actual cost of settlement
may materially vary from estimates. Refer to Note 29, Provisions,
of the consolidated financial statements.
Project loss provisions
The Group provides for onerous contracts based on the lower of
the expected cost of fulfilling the contract and the expected cost
of terminating the contract. Due to the long-term nature of customer
projects, changes in estimates of costs to be incurred, and therefore
project loss estimates, may become necessary as the projects are
executed. Based on these estimates and assumptions, the project
loss provision is EUR 152 million (EUR 144 million in 2012). Refer to
Note 29, Provisions, of the consolidated financial statements.
Annual Report 2013
43
44
Operational overview: sustainability
Understanding our impact
Corporate responsibility covers a wide
range of aspects including how we are
run, how we interact with the communities
in which we operate, and the impact we
have on the environment.
Health, safety and labor conditions
Providing safe and decent working conditions for employees is a
priority for NSN. The company’s Code of Conduct and Global Labor
Standard set out clear requirements for labor conditions, based
on the International Labor Organisation (ILO) conventions. NSN is
implementing the global standard at a country level, focusing on the
highest risk countries for labor violations. Internal audits are used
to confirm compliance.
Our people
The restructuring efforts announced in November 2011 have
progressed well towards the goals set with the aim of creating an
efficient and more competitive NSN. In 2013 the change continued
with speed and momentum, and NSN started moving from a phase
where the focus was primarily on restructuring to one where that
primary focus shifted more to transformation efforts.
NSN’s health and safety management system, which is based on
the international standard OHSAS 18001, safeguards employees
with appropriate safety procedures with equipment and training.
In 2013 NSN was awarded a global ISO OHSAS 18001 certificate,
excluding China, which will be amended during 2014. Contractors
must comply with the company’s health and safety standards and
NSN trains contractors to ensure they understand the procedures.
Regular internal and external audits are used to check compliance.
NSN has followed country-specific legal requirements to find
socially responsible means of reducing its workforce and treated
those affected with dignity and respect. Wherever possible, we
transferred employees to new roles inside the company to support
businesses that are core to its strategy. Additionally, NSN often
worked with local communities to speed up the process for
re-employment with other companies.
At December 31, 2013, NSN had 48 628 employees, of which
2 509 worked in production. During the year, the rate of voluntary
attrition was 7.5%, involuntary attrition was 18.2% and attrition
due to common agreement was 7.1%.
Diversity and inclusion
NSN has a very diverse Executive Board. It includes members
from the following countries: Australia, Canada/Lebanon, France,
Germany, India, Iran, Italy, Sweden, and the U.S.
At the end of 2013, 13% of senior management positions
(approximately 350 employees) within NSN were held by women,
an increase of 0.5 percentage point from 2012 and a continued
area for improvement. Employees of non-Finnish or non-German
nationality held 57% of senior management positions.
Training and development
During 2013, NSN spent EUR 41.5 million on training for employees
through its training organization.
To read more, visit nsn.com/about-us/sustainability
In 2013 NSN reduced the number of recordable health and safety
incidents and recorded a major reduction in work related fatalities
by 83%. In 2013, there were two fatal incidents in total, both resulting
in contractor fatalities.
NSN Code of Conduct
The Code of Conduct sets out NSN’s commitment to uphold high
ethical standards wherever it operates. NSN trains its employees
on ethical business conduct every year and concerns can be
reported anonymously through established whistleblower channels.
Any reported ethical concerns are investigated thoroughly by the
company’s Ethics and Compliance Office. In 2013, 96% of
employees completed ethical business conduct training and
96% of employees received further training on anti-corruption.
Suppliers
Our global suppliers requirements, which set standards in ethical,
environment, and social issues, form a part of contractual
agreements with suppliers and must be met by every NSN supplier.
In 2013 we continued to tighten these requirements by putting in
place Consequence Management for suppliers who do not meet our
health and safety requirements. Failing to demonstrate robust safety
management can trigger the termination of a contract and a phase
out of the supplier. The compliance to supplier requirements was
monitored through 27 system audits.
More detailed audits are undertaken with some suppliers selected
through a risk assessment process. During the course of 2013
we closed three audits and conducted 10 new audits. Additionally
52 suppliers were assessed through the EcoVadis platform.
We further clarified our scope of suppliers under the Conflict Free
Smelters Program, and as a result we have made enquiries with
282 key suppliers with respect to their mineral sourcing process and
we are ready for the first time progress reporting as required in 2014.
Nokia Solutions and Networks
Environment
NSN’s environmental strategy has two key elements:
–Designing products and services that help telecoms operators
reduce the environmental impact of their networks
–Ensuring maximized efficiency in the company’s own operations
to minimize its environmental impact
NSN’s portfolio aims to reduce the environmental impact of new
and legacy telecommunications networks through more efficient
technology and renewable energy solutions by lowering power
consumption and greenhouse gas emissions.
We were able to grow the amount of renewable energy used in
our own facilities in 2013 – over 44.5% of the used energy is from
certified renewable sources.
Efforts in 2013 for lowering energy consumption and emissions
resulted in a 19% reduction on total emissions from operations.
Society
Human rights
NSN recognizes its responsibility to help ensure that the
communications technologies it provides are used to respect,
and not infringe, human rights. Our Code of Conduct spells out
zero tolerance for the violation of human rights. This commitment
is reinforced in its human rights policy, which establishes due
diligence processes to identify and address relevant human rights
risks across the company’s global operations. Employees are trained
on human rights through ethical business training, and those in
high-risk roles such as procurement are given additional training.
Community
We have policies in place relating to disaster relief and to employee
volunteering. During 2013 our efforts were focused on local
activities on helping to recover telecommunications functionality
in disaster areas.
TT Network
Denmark (TTN)
Network sharing is
becoming a major trend
in telecommunications. And,
starting in 2013, NSN became
the first vendor to supply a
network across GSM, 3G and
LTE to two operators sharing
the same network and
frequencies. The move
enabled TTN – a joint venture
between Telia and Telenor
Denmark – to gain significant
cost savings, while increasing
service levels and customer
satisfaction. The Single RAN
sharing combines two
nationwide networks with live
traffic over multiple frequencies
and technologies while
managing a multi-vendor
environment in the core.
Business review
To achieve improved environmental performance, NSN operate
a company-wide Environmental Management System (EMS),
certified to the internationally recognized standard ISO 14001.
NSN also requires its suppliers to have a documented Environmental
Management System – compliant with ISO 14001 – in place.
In 2013 NSN was recertified with ISO 14001.
Real World Performance
Best spectrum
utilization
–First network across
GSM, 3G and LTE for two
operators sharing the same
network and frequencies
–Improved coverage
–Reduction in operational
costs
All indicators in this section of the Annual Report have
been assured by DNV GL.
Annual Report 2013
For more information on our performance worldwide
see reports.nsn.com/#/case-studies
45
46
Nokia Solutions and Networks
Financial statements
48
49
50
51
52
53
Annual Report 2013
Consolidated Income Statement
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Changes
in Shareholders’ Equity
Notes to the Consolidated Financial
Statements
Company Financial
Statements 2013
108 Company Statement of Financial
Position
109 Company Income Statement
110 Notes to the Company Financial
Statements
Other information
117
117
117
118
Financial statements
Consolidated Financial
Statements 2013
Proposed profit appropriation
Proposed appropriation of result
Subsequent events
Independent auditor’s report
47
Consolidated Financial Statements
Consolidated Income Statement
2013
For the year ended December 31
Net sales
Cost of sales
Gross profit
Research and development expenses
Selling and marketing expenses
Administrative and general expenses
Other income
Other expenses
Notes
Before
specific
items
Specific
items
EURm
EURm
3, 4
5, 6, 9, 22
11 172
(7 077)
–
(170)
5, 6, 9
5, 6, 9
5, 6, 9
10
10
4 095
(1 770)
(728)
(480)
113
(125)
(170)
(47)
(108)
(134)
6
(101)
1 105
(554)
2012
Before
specific
items
Specific
items
EURm
EURm
EURm
11 172
(7 247)
13 372
(9 264)
–
(653)
3 925
(1 817)
(836)
(614)
119
(226)
4 108
(1 908)
(885)
(449)
105
(145)
(653)
(208)
(382)
(242)
–
(78)
826
(1 563)
Total
2011
Before
specific
items
Specific
items
EURm
EURm
EURm
13 372
(9 917)
13 645
(9 886)
–
(51)
13 645
(9 937)
3 455
(2 116)
(1 267)
(691)
105
(223)
3 759
(1 968)
(990)
(495)
92
(60)
(51)
(107)
(330)
(37)
–
(19)
3 708
(2 075)
(1 320)
(532)
92
(79)
(737)
8
15
(123)
(199)
338
(544)
(206)
(17)
15
(108)
(58)
Total
Total
EURm
Operating profit/(loss)
Share of results of associates
Financial income
Financial expenses
Other financial results
18
11
11
11
551
8
20
(104)
(59)
Profit/(loss) before tax
Income tax expense
14
416
(268)
(1 036)
(342)
(374)
(235)
148
(1 378)
(609)
(133)
(63)
(87)
Profit/(loss) for the year
15
(1 441)
(696)
Attributable to:
Equity holders of the parent
Non-controlling interests
3
12
(1 459)
18
(708)
12
15
(1 441)
(696)
Profit/(loss) for the year from
continuing operations
Discontinued operations
Loss for the year from discontinued
operations
12
The Group’s financial statements for the years ended December 31, 2012 and December 31, 2011 reflect the retrospective application of IAS 19R, Employee Benefits (refer to
Note 8, Pensions).
For an analysis of specific items, refer to Note 2, Specific items.
The notes are an integral part of these consolidated financial statements.
48
Nokia Solutions and Networks
Consolidated Financial Statements
Consolidated Statement of Comprehensive Income
For the year ended December 31
Notes
2013
EURm
Profit/(loss) for the year
Other comprehensive income
Items that will not be reclassified to profit or loss:
Remeasurements of defined benefit plans
Income tax related to remeasurements of defined benefit plans
2012
2011
EURm
EURm
15
(1 441)
(696)
107
(7)
(165)
8
(50)
15
100
(157)
(35)
(158)
(27)
(2)
1
–
1
(6)
94
–
4
–
–
47
17
(1)
(2)
1
3
(185)
92
65
Other comprehensive income for the year, net of tax
(85)
(65)
30
Total comprehensive loss for the year
(70)
(1 506)
(666)
Attributable to:
Equity holders of the parent
Non-controlling interests
(80)
10
(1 525)
19
(685)
19
Total comprehensive loss for the year
(70)
(1 506)
(666)
53
(133)
(1 462)
(63)
(598)
(87)
(80)
(1 525)
(685)
Items that may be reclassified subsequently to profit or loss:
Translation differences
Cash flow hedges
Available-for-sale investments
Share of other comprehensive income/(expense) of associates
Other increase
Income tax related to components of other comprehensive income
Total comprehensive loss attributable to equity shareholders arises from:
Continuing operations
Discontinued operations
8, 27
26
27
27
18, 26
26, 27
Financial statements
The Group’s financial statements for the years ended December 31, 2012 and December 31, 2011 reflect the retrospective application of IAS 19R, Employee Benefits (refer to
Note 8, Pensions).
The notes are an integral part of these consolidated financial statements.
Annual Report 2013
49
50
Consolidated Financial Statements
Consolidated Statement of Financial Position
As at December 31
2013
2012
EURm
EURm
173
259
404
36
512
29
30
38
182
387
509
31
476
63
29
28
1 481
1 705
35
35
792
2 864
498
29
163
140
–
2 769
984
4 111
601
37
165
237
2
2 418
31
7 255
–
8 555
143
8 736
10 403
0
9 753
(22)
(24)
(7 617)
0
9 744
133
(96)
(7 620)
Non-controlling interests
2 090
86
2 161
126
Total equity
2 176
2 287
895
44
242
166
821
25
303
280
1 347
1 429
29
86
110
3
1 787
2 424
140
663
195
134
16
2 352
3 086
150
664
31
5 213
–
6 597
90
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments in associates
Deferred tax assets
Long-term loans receivable
Available-for-sale investments
Other non-current assets
Current assets
Inventories
Accounts receivable, net of allowances for doubtful accounts
Prepaid expenses and accrued income
Current portion of long-term loans receivable
Other financial assets
Current income tax assets
Available-for-sale investments, liquid assets
Cash and cash equivalents
Assets of disposal groups classified as held for sale
Notes
13, 15
15
16
18
19
20
20
8
22
20, 23, 35
24
20
20
Total assets
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital
Share premium
Translation differences
Fair value and other reserves
Accumulated deficit
Non-current liabilities
Long-term interest-bearing liabilities
Deferred tax liabilities
Provisions
Other long-term liabilities
Current liabilities
Current portion of long-term interest-bearing liabilities
Short-term borrowings
Other financial liabilities
Accounts payable
Accrued expenses
Current income tax liabilities
Provisions
Liabilities of disposal groups classified as held for sale
25
25
26
27
20, 28
19
29
8
20, 28
20, 28
20
20
30
Total liabilities
6 560
8 116
Total equity and liabilities
8 736
10 403
The Group’s financial statements for the year ended December 31, 2012 reflect the retrospective application of IAS 19R, Employee Benefits (refer to Note 8, Pensions and
Note 19, Deferred taxes). Other reclassifications were made for comparability purposes in 2012, refer to Note 24, Prepaid expenses and other income; Note 28, Loans and
borrowings; Note 29, Provisions; and Note 30, Accrued expenses.
The notes are an integral part of these consolidated financial statements.
Nokia Solutions and Networks
Consolidated Financial Statements
Consolidated Statement of Cash Flows
For the year ended December 31
2013
2012
2011
EURm
EURm
EURm
15
(1 441)
(696)
341
313
268
143
(153)
1 162
587
347
307
64
57
711
240
151
28
147
72
51
84
(10)
83
1 146
1 161
564
1 044
121
(1 447)
789
198
(3)
529
(44)
(470)
Cash from operations
Interest received
Interest paid
Other financial income and expenses, net received/(paid)
Income taxes paid
864
17
(83)
202
(235)
2 145
11
(134)
(136)
(258)
579
9
(104)
30
(191)
Cash flows from operating activities
Profit/(loss) for the year
Adjusted for:
Restructuring and other specific items1
Depreciation and amortization
Income taxes
Financial income and expenses
Transfer from hedging reserve to sales and cost of sales
(Profit)/loss on sale of property, plant and equipment,
businesses and Group companies
Other adjustments
Change in net working capital:
Decrease in current receivables
Decrease/(increase) in inventories
Decrease in interest-free liabilities2
Notes
32
765
1 628
323
–
(2)
1
–
7
(164)
(63)
34
5
64
–
10
–
–
(216)
(125)
6
–
(781)
–
2
(9)
82
(303)
(4)
24
–
Net cash used in investing activities
(182)
(261)
(989)
Cash flows from financing activities
Proceeds from issuance of cumulative preferred shares
Proceeds from long-term borrowings
Repayment of long-term borrowings
(Repayments of)/proceeds from short-term borrowings
Dividends and other payments to non-controlling interests
9
779
(805)
(67)
(50)
–
1
(264)
(244)
(13)
1 000
–
(48)
232
(29)
Net cash (used in)/from financing activities
(134)
(520)
1 155
(98)
(42)
(74)
Net increase in cash and cash equivalents
351
805
415
Cash and cash equivalents at beginning of year
2 418
1 613
1 198
Cash and cash equivalents at end of year
2 769
2 418
1 613
Cash and cash equivalents comprise:
Bank and cash
Current available-for-sale investments, cash equivalents
1 845
924
1 712
706
729
884
2 769
2 418
1 613
Foreign exchange adjustments
Financial statements
Net cash from operating activities
Cash flows from investing activities
Acquisition of Group companies, net of acquired cash
Purchase of shares in associates
Proceeds from current available-for-sale investments, liquid assets
Purchase of non-current available-for-sale investments
Proceeds from short-term and other long-term loans receivable
Purchases of property, plant and equipment, and intangible assets
Payments for disposal of businesses and Group companies
Proceeds from sale of property, plant and equipment, and intangible assets
Dividends received
Excludes PPA related charges, divestment results and impairments which are presented in other line items within the above adjustments section and in Note 32, Notes to
the consolidated statement of cash flows.
2
Includes changes in the following line items in the statement of financial position: accounts payable, accrued expenses, provisions and other short-term liabilities.
1
The Group’s financial statements for the years ended December 31, 2012 and December 31, 2011 reflect the retrospective application of IAS 19R, Employee Benefits (refer to
Note 8, Pensions).
The figures in the consolidated statement of cash flows cannot be directly traced from the statement of financial position without additional information as a result of
acquisitions and disposals of subsidiaries and net foreign exchange differences arising on consolidation.
The notes are an integral part of these consolidated financial statements.
Annual Report 2013
51
52
Consolidated Financial Statements
Consolidated Statement of Changes in Shareholders’ Equity
Attributable to owners of the parent
EURm
Notes
Balance at January 1, 2011
(Loss)/profit for the year
Other comprehensive income
(net of tax)
Remeasurements of defined
benefit plans
Cash flow hedges
Available-for-sale investments
Currency translation differences
Share of other comprehensive
income of associates
Other increase
Number
of
ordinary
shares
Fair value
Before
Number of
and
AccunonNoncumulative Ordinary
Share Translation
other mulated controlling controlling
preference
share
1
deficit
interests
interests
shares
capital premium differences reserves
100 073
0
8 744
40
18, 26
(2)
200
Balance at December 31, 2011
100 073
500
1 000
0
9 744
Balance at December 31, 2013
136
(7)
18, 26
4
(3)
Balance at December 31, 2012
Total comprehensive (loss)/
income for the year
Share class conversion
Additional parent contribution
Dividend
Other changes in non-controlling
interests2
38
8
27
26
Total comprehensive (loss)/
income for the year
Dividend
Profit for the year
Other comprehensive income
(net of tax)
Remeasurements of defined
benefit plans
Cash flow hedges
Available-for-sale investments
Currency translation differences
Share of other comprehensive
income of associates
98
8
27
27
26
Total comprehensive income/
(loss) for the year
Cumulative preference shares issued
Dividend
Acquisitions and other changes in
non-controlling interests
(Loss)/profit for the year
Other comprehensive income
(net of tax)
Remeasurements of defined
benefit plans
Cash flow hedges
Currency translation differences
Share of other comprehensive
income of associates
300
100 073
500
0
9 744
133
8
27
27
26
(156)
18, 26
1
25 700 221
800 294
(155)
(500)
–
(17) (5 454)
3 371
95
3 466
(708)
(708)
12
(696)
7
(35)
20
(1)
47
(35)
20
(1)
(35)
20
(1)
40
1
(16)
(707)
9 753
(22)
(2)
1
(2)
1
(685)
1 000
–
(15)
(666)
1 000
(15)
–
17
17
(33) (6 161)
3 686
116
3 802
(1 459)
(1 459)
18
(1 441)
1
(157)
94
(6)
(157)
94
(157)
94
(7)
19
4
(63)
4
(1 459)
(1 525)
–
19
(9)
(1 506)
(9)
(96) (7 620)
2 161
126
2 287
3
3
12
15
(2)
100
(27)
(1)
(158)
100
(27)
(1)
100
(27)
(1)
(156)
1
72
3
9
0
Total
(24) (7 617)
1
(80)
–
9
–
10
(70)
–
9
(21)
(21)
–
(29)
(29)
2 090
86
2 176
Ordinary share capital comprises EUR 400 thousand (refer to Note 25, Issued share capital and share premium).
Relates primarily to a liquidation of a Group subsidiary.
1
2
The Group’s financial statements for the years ended December 31, 2012 and December 31, 2011 reflect the retrospective application of IAS 19R, Employee Benefits (refer to
Note 8, Pensions).
The notes are an integral part of these consolidated financial statements.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
1 Accounting principles
General
Nokia Solutions and Networks B.V., a limited liability company
incorporated and domiciled in The Hague, the Netherlands, is the
‘holding company’ for all its subsidiaries (‘NSN’ or ‘the Group’).
The Group’s operational headquarters are in Espoo, Finland.
The Group is a leading global provider of telecommunications
infrastructure, with a focus on the mobile broadband market.
Basis of presentation
The consolidated financial statements of the Group are prepared
in accordance with International Financial Reporting Standards as
issued by the International Accounting Standards Board (‘IASB’) and
in conformity with IFRS as adopted by the European Union (‘IFRS’).
The consolidated financial statements are presented in millions of
euro (‘EURm’), except as otherwise noted, and are prepared under
the historical cost convention, except as disclosed in the accounting
policies below.
On April 30, 2014 the Board of Directors of Nokia Solutions and
Networks B.V. authorized the financial statements for issuance.
This paragraph is included in connection with statutory reporting
requirements in the Netherlands. The company income statement
of the Parent company is prepared in compliance with section
2:402 of the Netherlands Civil Code.
This paragraph is included in connection with statutory reporting
requirements in Germany. The fully consolidated German
subsidiaries, Nokia Solutions and Networks GmbH & Co. KG,
registered in the commercial register of Munich under HRA 88537
and Nokia Solutions and Networks Services GmbH & Co. KG,
registered in the commercial register of Munich under HRA 90646
have made use of the exemption available under § 264b of the
German Commercial Code (HGB).
Adoption of pronouncements under IFRS
In the current year, the Group has adopted all of the new and
revised standards, and amendments and interpretations to existing
standards issued by the IASB that are relevant to its operations
and effective for accounting periods commencing on or after
January 1, 2013.
Annual Report 2013
Revised IAS 19, Employee Benefits, discontinues use of the ‘corridor’
approach and re-measurement impacts are recognized in other
comprehensive income. Net interest as a product of discount rate
and adjusted net pension liability at the start of the financial year is
recognized in the income statement while the return on plan assets,
excluding amounts included in net interest, is reflected in
remeasurements within other comprehensive income. Previously
unrecognized actuarial gains and losses were also recognized in
other comprehensive income. Other long-term employee benefits
are required to be measured in the same way with immediate
recognition in the income statement. Treatment for termination
benefits, specifically the point in time when an entity would recognize
a liability for termination benefits, is also revised.
As a result of adopting the revised IAS 19, the net pension liabilities
and other comprehensive income were impacted mainly by the
retrospectively applied elimination of the ‘corridor’ approach for
2012 and 2011. For information on the adjustments between the
previously reported information and the adjusted information,
refer to Note 8, Pensions.
In addition, a number of other amendments that form part of the
IASB’s annual improvement project were adopted by the Group.
Excluding the impacts of the amended IAS 19, the adoption of other
standards and amendments, effective January 1, 2013, did not have
a material impact on the consolidated financial statements.
Financial statements
On August 7, 2013, Nokia Corporation (‘Nokia’) completed the
acquisition of Siemens Aktiengesellschaft’s (‘Siemens’) stake in the
Group, as a result, the Group is wholly owned by Nokia and Nokia
Siemens Networks was renamed as Nokia Solutions and Networks.
The Group commenced operations on April 1, 2007 upon the
contribution of certain tangible and intangible assets and certain
business interests that comprised Nokia’s networks business and
Siemens’ carrier-related operations. Previously, Nokia and Siemens
(formerly the ‘parent companies’) each owned approximately 50%
of Nokia Siemens Networks. Nokia is incorporated in Espoo, Finland
and Siemens is incorporated in Munich, Germany. Nokia had the
ability to appoint the Chief Executive Officer (‘CEO’) of the Group and
the majority of the members of the Board of Directors. Accordingly,
for accounting purposes, Nokia was deemed to have control and
thus consolidated the results of Nokia Siemens Networks in its
financial statements. Siemens accounted for its ownership using
the equity method of accounting.
IFRS 13, Fair Value Measurement, replaces fair value measurement
guidance contained within individual IFRSs with a single, unified
definition of fair value in a single new standard. The new standard
provides a framework for measuring fair value, related disclosure
requirements about fair value measurements and further
authoritative guidance on the application of fair value measurement
in inactive markets.
Early adopted standards
–IFRS 10, Consolidated Financial Statements, establishes principles
for the presentation and preparation of consolidated financial
statements when an entity controls one or more other entities.
–IFRS 11, Joint Arrangements, establishes that the legal form of an
arrangement should not be the primary factor in the determination
of the appropriate accounting for the arrangement. A party to a joint
arrangement determines the type of joint arrangement in which it
is involved by assessing its rights and obligations and accounts for
those rights and obligations in accordance with that type of joint
arrangement.
–IFRS 12, Disclosure of Interests in Other Entities, requires disclosure
of information that enables users of financial statements to evaluate
the nature of, and risks associated with, its interests in other entities
and the effects of those interests on its financial position, financial
performance and cash flows.
The adoption of each of the above mentioned standards did not
have a material impact on the consolidated financial statements.
Additional disclosures required by the new standards have been
provided in the notes.
53
54
Notes to the Consolidated Financial Statements
Principles of consolidation
The consolidated financial statements comprise the financial
statements of Nokia Solutions and Networks B.V. as the parent
company (‘the Parent’), and each of those companies over which
the Group exercises control. Control over an entity exists when
the Group is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity. When the Group has less than a
majority of the voting or similar rights of an entity, the Group considers
all relevant facts and circumstances in assessing whether it has
power over an entity, including the contractual arrangement with the
other vote holders of the entity, rights arising from other contractual
arrangements and the Group’s voting rights and potential voting
rights. The Group re-assesses whether or not it controls an entity
if facts and circumstances indicate that there are changes to one
or more of the three elements of control.
All intercompany transactions are eliminated as part of the
consolidation process. Non-controlling interests are presented
separately as a component of net profit and are shown as a
component of shareholders’ equity in the consolidated statement
of financial position.
The entities or businesses acquired during the financial periods
presented have been consolidated from the date on which control of
the net assets and operations was transferred to the Group. Similarly,
the results of Group entities or businesses divested during an
accounting period are included in the Group consolidated financial
statements only to the date of disposal.
Segment information
Operating segments have been determined by reference to
the internal reporting information provided to the chief operating
decision-maker, who is responsible for allocating resources and
assessing the performance of the operating segments (refer to
Note 3, Segment information).
Revenue recognition
The majority of the Group’s sales are recognized when the significant
risks and rewards of ownership have transferred to the buyer,
continuing managerial involvement usually associated with
ownership and effective control have ceased, the amount of revenue
can be measured reliably, it is probable that the economic benefits
associated with the transaction will flow to the Group and the costs
incurred or to be incurred in respect of the transaction can be
measured reliably. The Group accounts for discounts as a reduction
in revenue.
Service revenue, which typically includes managed services and
maintenance services, is generally recognized on a straight-line basis
over the specified period unless there is evidence that some other
method better represents the rendering of services.
The Group enters into transactions involving multiple components
consisting of any combination of hardware, services and software.
Within multiple element arrangements, separate components are
identified and accounted for based on the nature and fair value of
those components and considering the economic substance of
the entire arrangement. Revenue is allocated to each separately
identifiable component based on the relative fair value of each
component. The Group determines the fair value of each
component by taking into consideration factors such as the price
of the component when sold separately and the component cost
plus a reasonable margin when price references are not available.
The revenue allocated to each component is recognized when the
revenue recognition criteria for that component have been met.
In addition, sales from contracts involving solutions achieved through
the modification of complex telecommunications equipment are
recognized using the percentage of completion method when the
outcome of the contract can be estimated reliably. A contract’s
outcome can be estimated reliably when total contract revenue
and the costs to complete the contract can be estimated reliably,
it is probable that the economic benefits associated with the contract
will flow to the Group and the stage of contract completion can be
measured reliably. When the Group is not able to meet one or more
of those conditions, the policy is to recognize revenue only equal
to costs incurred to date, to the extent that such costs are expected
to be recovered.
Progress towards completion is measured by reference to cost
incurred to date as a percentage of estimated total project costs,
using the cost-to-cost method. The percentage of completion
method relies on estimates of total expected contract revenue and
costs, as well as dependable measurement of the progress made
towards completing a particular project. Recognized revenues and
profits are subject to revisions during the project in the event that the
assumptions regarding the overall project outcome are revised. The
cumulative impact of a revision in estimates is recorded in the period
such revisions become probable and can be estimated reliably.
Losses on projects in progress are recognized in the period they
become probable and can be estimated reliably.
Shipping and handling costs
The costs of shipping and distributing products are included in
cost of sales.
Research and development
Research and development costs are expensed as incurred,
except for certain development costs, which are capitalized when it
is probable that a development project will generate future economic
benefits and certain criteria, including commercial and technological
feasibility, have been met. Capitalized development costs,
comprising direct labor and related overhead, are amortized
on a systematic basis over their expected useful lives of between
two and five years.
Capitalized development costs are subject to regular assessments
of recoverability based on anticipated future revenues, including
the impact of changes in technology. Unamortized capitalized
development costs determined to be in excess of their recoverable
amounts are expensed immediately.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
Employee benefits
Pensions
The Group companies have various pension schemes in accordance
with the local conditions and practices in the countries in which they
operate. The schemes are generally funded through payments to
trustee-administered funds or insurance companies as determined
by periodic actuarial calculations.
In a defined contribution plan, the Group’s legal or constructive
obligation is limited to the amount that it agrees to contribute to the
fund. The Group’s contributions to defined contribution plans are
recognized in the income statement in the period to which the
contributions relate. All arrangements that do not fulfill these
conditions are considered defined benefit plans.
For defined benefit plans, pension costs are assessed using the
projected unit credit method: the pension cost is recognized in the
income statement so as to spread the current service cost over the
service lives of employees. The pension obligation is measured as
the present value of the estimated future cash outflows using interest
rates on high quality corporate bonds or government bonds with
appropriate maturities. Actuarial gains and losses arising from
experience adjustments and changes in actuarial assumptions are
charged or credited to equity in other comprehensive income in the
period in which they arise. Past service costs and settlement gains
and losses are recognized immediately in the income statement as
part of service costs, when the plan amendment, curtailment or
settlement occurs.
The liability (or asset) recognized in the statement of financial position
is the pension obligation at the closing date less the fair value of plan
assets including effects relating to any asset ceiling.
For cash-settled share-based payment transactions, the employee
services received and the liability incurred are measured at the fair
value of the liability. The fair value of options is determined based
on the reporting date estimated value of shares less the exercise
price of the options (refer to Note 7, Share-based payment). The fair
value of the liability is re-measured at each reporting date, and at
the date of settlement, with changes in fair value recognized in the
income statement.
Income taxes
The income tax expense comprises current tax and deferred tax.
Current taxes are based on the results of the Group companies
and are calculated according to local tax rules. Tax is recognized
in the income statement except to the extent that it relates to items
recognized in other comprehensive income or directly in equity,
then the tax is recognized in other comprehensive income or
equity, respectively.
The Group periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to
interpretation. It adjusts the amounts recorded, where appropriate,
on the basis of amounts expected to be paid to the tax authorities.
The provision for uncertain income tax positions is recognized when
it is more likely than not that certain tax positions will be challenged
and may not be fully sustained upon review by tax authorities.
The amounts recorded are based upon the estimated future
settlement amount at each statement of financial position date.
Current income tax assets and liabilities are presented separately
in the statement of financial position and amounts recorded in
respect of uncertain income tax positions are presented as part
of current income tax liabilities.
Deferred tax assets and liabilities are determined, using the liability
method, for all temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the
consolidated financial statements. Deferred tax assets are
recognized to the extent that it is probable that future taxable profit
will be available against which the unused tax losses or deductible
temporary differences can be utilized. Each reporting period they
are assessed for realizability, and when circumstances indicate it
is no longer probable that deferred tax assets will be utilized, they
Actuarial valuations for the Group’s defined benefit pension plans are are adjusted as necessary. Deferred tax liabilities are recognized
for temporary differences that arise between the fair value and tax
performed annually. In addition, actuarial valuations are performed
base of identifiable net assets acquired in business combinations.
when a material curtailment or settlement of a defined benefit plan
Deferred tax assets and deferred tax liabilities are offset for
occurs in the Group.
presentation purposes when there is a legally enforceable right
to set off current tax assets against current tax liabilities, and the
Termination benefits
deferred tax assets and the deferred tax liabilities relate to income
Termination benefits are payable when employment is terminated
before the normal retirement date, or whenever an employee accepts taxes levied by the same taxation authority on either the same
taxable entity or different taxable entities which intend either to settle
voluntary redundancy in exchange for these benefits. The Group
current tax liabilities and assets on a net basis, or to realize the assets
recognizes termination benefits when it is demonstrably committed
to either terminating the employment of current employees according and settle the liabilities simultaneously, in each future period in which
to a detailed formal plan without possibility of withdrawal, or providing significant amounts of deferred tax liabilities or assets are expected
to be settled or recovered.
termination benefits as a result of an offer made to encourage
voluntary redundancy.
The enacted or substantively enacted tax rates as of each statement
of financial position date that are expected to apply in the period
Share-based payment
when the asset is realized or the liability is settled are used in the
The Group established a share-based incentive program in 2012
measurement of deferred tax assets and liabilities.
under which options are granted to selected employees. The options
will be cash-settled at exercise unless certain corporate transactions
such as an initial public offering occur.
Annual Report 2013
Financial statements
Remeasurements, comprising of actuarial gains and losses, the
effect of the asset ceiling and the return on plan assets (excluding
amounts recognized in net interest), are recognized immediately in
the statement of financial position with a corresponding debit or
credit to retained earnings through consolidated statement of
comprehensive income in the period in which they occur.
Remeasurements are not reclassified to profit or loss in
subsequent periods.
55
56
Notes to the Consolidated Financial Statements
Business combinations
The acquisition method of accounting is used to account for
acquisitions of separate entities or businesses by the Group. The
consideration transferred in a business combination is measured
as the aggregate of the fair values of the assets transferred, liabilities
incurred towards the former owners of the acquired business and
equity instruments issued. Acquisition-related costs are recognized
as expenses in the income statement in the period in which the costs
are incurred and the related services are received. Identifiable assets
acquired and liabilities assumed by the Group are measured
separately at their fair value at the acquisition date. Non-controlling
interests in the acquired business are measured separately at fair
value or at the non-controlling interests’ proportionate share of the
identifiable net assets of the acquired business. The excess of the
aggregate consideration transferred over the acquisition date fair
values of the identifiable net assets acquired is recorded as goodwill.
Investment in associates
An associate is an entity over which the Group exercises significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the entity, but is not control
or joint control over those policies. The Group’s share of profits and
losses of associates is included in the consolidated comprehensive
income statement in accordance with the equity method of
accounting. Under the equity method, the investment in an associate
is initially recognized at cost. The carrying amount of the investment
is adjusted to recognize changes in the Group’s share of net assets
of the associate since the acquisition date. After the carrying
amount of the Group’s interest is reduced to nil, losses continue
to be recognized when it is considered that a constructive
obligation exists.
Disposals of separate entities or businesses
If upon disposal, the Group loses control of a separate entity or
business, it records a gain or loss on disposal at the date when
control is lost. The gain or loss on disposal is calculated as the
difference between the fair value of the consideration received and
the carrying amounts of derecognized assets (including any goodwill)
and liabilities of the disposed entity or business, and the carrying
amount of any non-controlling interest in the entity, adjusted by
amounts recognized in other comprehensive income in relation
to that entity or business.
Assessment of the recoverability of long-lived assets,
intangible assets and goodwill
For purposes of impairment testing, goodwill has been allocated to
each of the cash-generating units or groups of cash-generating units
(‘CGUs’), expected to benefit from the synergies of the combination.
The Group assesses the carrying value of goodwill annually, or
more frequently if events or changes in circumstances indicate that
such carrying value may not be recoverable. The carrying value of
identifiable intangible assets and long-lived assets is assessed if
events or changes in circumstances indicate that such carrying value
may not be recoverable. Factors that trigger an impairment review
include, but are not limited to, underperformance relative to historical
or projected future results, significant changes in the manner of the
use of the acquired assets or the strategy for the overall business
and significant negative industry or economic trends.
The Group conducts its impairment testing by determining the
recoverable amount for the asset or cash-generating unit. The
recoverable amount of an asset or a cash-generating unit is the
higher of its fair value less costs of disposal and its value-in-use. The
recoverable amount has been determined based on the expected
future cash flows attributable to the asset or cash-generating unit
discounted to present value. The recoverable amount is then
compared to the asset or cash-generating unit’s carrying amount
and an impairment loss is recognized if the recoverable amount is
less than the carrying amount. Impairment losses are recognized
immediately in the income statement.
Other intangible assets
Acquired patents, trademarks, licenses, software licenses for
internal use, customer relationships and developed technology are
capitalized and amortized using the straight-line method over their
useful lives, generally three to seven years. Where an indication of
impairment exists, the carrying amount of the related intangible asset
is assessed for recoverability. Any resulting impairment losses are
recognized immediately in the income statement.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is recorded on a straight-line basis over
the expected useful lives of the assets as follows:
Buildings and constructions
Industrial and office buildings
Light buildings and constructions
20 – 33 years
3 – 20 years
Machinery and equipment
Production machinery, measuring
and test equipment
Other machinery and equipment
1 – 5 years
3 – 10 years
Land and water areas are not depreciated.
Maintenance, repairs and renewals are generally expensed in the
period in which they are incurred. However, major renovations are
capitalized and included in the carrying amount of the asset when
it is probable that future economic benefits in excess of the originally
assessed standard of performance of the existing asset will flow to
the Group. Major renovations are depreciated over the remaining
useful life of the related asset. Leasehold improvements are
depreciated over the shorter of the lease term and useful life.
Gains and losses on the disposal of property, plant and equipment
are included in operating profit or loss.
Inventories
Inventories are stated at the lower of cost and net realizable value.
Cost is determined using standard cost, which approximates actual
cost on a FIFO (first-in, first-out) basis. Net realizable value is the
amount that can be realized from the sale of the inventory in the
normal course of business after allowing for the costs of realization.
In addition to the cost of materials and direct labor, an appropriate
proportion of production overhead is included in the inventory values.
An allowance is recorded for excess inventory and obsolescence
based on the lower of cost and net realizable value.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
Fair value measurement
Many financial instruments are measured at fair value at each
balance sheet date after initial recognition. Fair value is the price
that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date. The fair value of an asset or a liability is measured
using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act
in their economic best interest by using quoted market rates,
discounted cash flow analyses and other appropriate valuation
models. The Group uses valuation techniques that are appropriate
in the circumstances and for which sufficient data are available to
measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs. All assets and
liabilities for which fair value is measured or disclosed in the financial
statements are categorized within the fair value hierarchy, described
as follows, based on the lowest level input that is significant to the fair
value measurement as a whole:
Current fixed income and money-market investments are fair valued
by using quoted market rates, discounted cash flow analyses and
other appropriate valuation models at the statement of financial
position date. Investments in publicly quoted equity shares are
measured at fair value using exchange quoted bid prices. Other
available-for-sale investments carried at fair value include holdings
in unlisted shares. Fair value is estimated by using various factors,
including, but not limited to: (1) the current market value of similar
instruments, (2) prices established from a recent arm’s-length
financing transaction of the target companies, (3) analysis of market
prospects and operating performance of the target companies
taking into consideration public market comparable companies in
similar industry sectors. The remaining available-for-sale investments
are carried at cost less impairment; these are technology-related
investments in private equity shares and unlisted funds for which
the fair value cannot be measured reliably due to non-existence of
public markets or reliable valuation methods against which to value
these assets.
Level 1 — Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
All purchases and sales of investments are recorded on the trade
date, which is the date that the Group commits to purchase or sell
the asset.
Level 2 — Valuation techniques for which significant inputs other
than quoted prices are directly or indirectly observable
Level 3 — Valuation techniques for which significant inputs are
unobservable
The Group categorizes assets and liabilities that are measured at
fair value on a recurring basis to an appropriate level of the fair value
hierarchy at the end of each reporting period.
Available-for-sale investments
The Group invests a portion of cash needed to cover the projected
cash needs of its ongoing operations in highly liquid, interest-bearing
investments. The following investments are classified as availablefor‑sale based on the purpose for acquiring the investments and the
Group’s ongoing intentions: (1) Highly liquid, fixed income and
money-market investments that are readily convertible to known
amounts of cash with maturities at acquisition of three months or
less, which are included in cash and cash equivalents in the
statement of financial position. Due to the high credit quality and
short-term nature of these investments there is an insignificant risk
of changes in value. (2) Similar types of investments as in category (1),
but with maturities at acquisition of longer than three months,
classified in the statement of financial position as current availablefor-sale investments, liquid assets. (3) Investments in technology
related publicly quoted equity shares, or unlisted private equity
shares and unlisted funds, are classified in the statement of
financial position as non-current available-for-sale investments.
Annual Report 2013
Financial statements
Financial assets
The Group has classified its financial assets as one of the following
categories: available-for-sale investments, derivative and other
current financial assets, loans receivable, accounts receivable or
cash and cash equivalents. Derivatives are described below in the
section on Derivative financial instruments. Derivatives and other
current financial assets are presented in Note 20, Fair value of
financial instruments.
The fair value changes of available-for-sale investments are
recognized in fair value and other reserves as part of other
comprehensive income, with the exception of interest calculated
using the effective interest method and foreign exchange gains
and losses on current available-for-sale investments, which are
recognized directly in the income statement. Dividends on availablefor-sale equity instruments are recognized in the consolidated
income statement when the Group’s right to receive payment is
established. When the investment is disposed of, the related
accumulated fair value changes are released from other
comprehensive income and recognized in the income statement.
The weighted average method is used when determining the cost
basis of publicly listed equities being disposed of by the Group.
The FIFO method is used to determine the cost basis of fixed
income securities being disposed of by the Group. An impairment
is recorded when the carrying amount of an available-for-sale
investment is greater than the estimated fair value and there is
objective evidence that the asset is impaired. The cumulative net loss
relating to that investment is removed from equity and recognized in
the income statement for the period. If, in a subsequent period, the
fair value of the investment in a non-equity instrument increases and
the increase can be objectively related to an event occurring after the
loss was recognized, the loss is reversed, with the amount of the
reversal included in the income statement.
Loans receivable
Loans receivable include loans to customers and are measured
initially at fair value and subsequently at amortized cost less
impairment using the effective interest method. Loans are subject to
regular review as to their collectability and available collateral. In the
case that a loan is deemed not fully recoverable, a provision is made,
and included in other expenses to reflect the shortfall between the
carrying amount and the present value of the expected cash flows.
Interest income on loans receivable is recognized in the income
statement in other income or financial income depending on the
nature of the receivable by applying the effective interest rate. The
long-term portion of loans receivable is included in the statement
of financial position in long-term loans receivable and the current
portion in current portion of long-term loans receivable.
57
58
Notes to the Consolidated Financial Statements
Accounts receivable
Accounts receivable include both amounts invoiced to customers
and amounts where the Group’s revenue recognition criteria have
been fulfilled but the customers have not yet been invoiced. Accounts
receivable are carried at amortized cost using the effective interest
rate method less allowances for doubtful accounts. Allowances for
doubtful accounts are based on a periodic review of all outstanding
amounts, including an analysis of historical bad debt, customer
concentrations, customer creditworthiness, past due amounts,
current economic trends and changes in customer payment terms.
Bad debts are written off when identified as uncollectible and are
included in other expenses. The Group derecognizes an accounts
receivable balance only when the contractual rights to the cash
flows from the asset expire or it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset
to another entity.
Cash and cash equivalents
Bank and cash consist of cash at bank and in hand. Cash equivalents
consist of highly liquid available-for-sale investments purchased with
remaining maturities at the date of acquisition of three months or less.
Financial liabilities
Loans payable
Loans payable are recognized initially at fair value, net of transaction
costs incurred. In subsequent periods, loans are stated at amortized
cost using the effective interest method. The long-term portion of
loans payable is included in the statement of financial position in
long-term interest-bearing liabilities and the current portion in the
current portion of long-term interest-bearing liabilities.
Interest costs are recognized in the income statement as financial
expenses in the period in which they are incurred.
Accounts payable
Accounts payable are carried at the original invoiced amount which
is considered to be fair value due to the short-term nature of the
Group’s accounts payable.
Derivative financial instruments
All derivatives are recognized initially at fair value on the date a
derivative contract is entered into and are subsequently remeasured
at fair value. The method of recognizing the resulting gain or loss
varies according to whether the derivatives are designated and
qualify under hedge accounting. Generally the cash flows of a
hedge are classified as cash flows from operating activities in the
consolidated statement of cash flows as the underlying hedged
items relate to the Group’s operating activities. When a derivative
contract is accounted for as a hedge of an identifiable position
relating to financing or investing activities, the cash flows of the
contract are classified in the same manner as the cash flows of
the position being hedged.
Derivatives not designated in hedge accounting relationships
carried at fair value through profit and loss
Fair values of cash-settled equity derivatives are calculated based
on quoted market rates at each statement of financial position date.
Changes in fair value are recognized in the income statement.
Fair values of forward rate agreements, interest rate options, futures
contracts and exchange traded options are calculated based on
quoted market rates at each statement of financial position date.
Discounted cash flow analyses are used to value interest rate and
currency swaps. Changes in the fair value of these contracts are
recognized in the income statement.
Forward foreign exchange contracts are valued at the market
forward exchange rates. Changes in fair value are measured by
comparing these rates with the original contract forward rate.
Currency options are valued at each statement of financial position
date by using the Garman & Kohlhagen option valuation model.
Changes in the fair value of these instruments are recognized in
the income statement.
For derivatives not designated under hedge accounting but hedging
identifiable exposures such as anticipated foreign currency
denominated sales and purchases, the gains and losses are
recognized in other income or expenses. The gains and losses
on all other derivatives not designated under hedge accounting
are recognized in financial income and expenses (refer to Note 11,
Financial income and expenses).
Embedded derivatives, if any, are identified and monitored by the
Group and measured at fair value at each statement of financial
position date with changes in fair value recognized in the income
statement.
Hedge accounting
The Group applies hedge accounting on certain forward foreign
exchange contracts, certain options or option strategies and certain
interest rate derivatives. Qualifying options and option strategies have
zero net premium or a net premium paid. For option structures the
critical terms of the bought and sold options are the same and the
nominal amount of the sold option component is no greater than that
of the bought option.
Cash flow hedges: Hedging of forecast foreign currency
denominated sales and purchases
The Group applies hedge accounting for ‘qualifying hedges’.
Qualifying hedges are those properly documented cash flow hedges
of the foreign exchange rate risk of future forecast foreign currency
denominated sales and purchases that meet the requirements set
out in IAS 39, Financial Instruments: Recognition and Measurement.
The hedged item must be ‘highly probable’ and must present an
exposure to variations in cash flows that could ultimately affect profit
or loss. The hedge must be highly effective, both prospectively and
retrospectively.
For qualifying foreign exchange forwards, the change in fair value that
reflects the change in spot exchange rates is deferred in fair value and
other reserves to the extent that the hedge is effective. For qualifying
foreign exchange options or option strategies, the change in intrinsic
value is deferred in fair value and other reserves to the extent that the
hedge is effective. In all cases the ineffective portion is recognized
immediately in the income statement.
Hedging costs, either expressed as the change in fair value that
reflects the change in forward exchange rates less the change in spot
exchange rates for forward foreign exchange contracts, or changes
in the time value for options, or options strategies are recognized in
other income or expenses.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
Accumulated fair value changes from qualifying hedges are released
from fair value and other reserves into the income statement as
adjustments to sales and cost of sales in the period when the hedged
item affects the income statement. Forecast foreign currency sales
and purchases affect profit and loss at various dates up to
approximately 12 months from the statement of financial position
date. If the forecasted transaction is no longer expected to take
place, all deferred gains or losses are released immediately into
the income statement. If the hedged item ceases to be highly
probable but is still expected to take place, accumulated gains
and losses remain in equity until the hedged cash flow affects
the income statement.
Cash flow hedges: Hedging of foreign currency risk of highly
probable business acquisitions
The Group hedges the cash flow variability due to foreign currency
risk inherent in highly probable business acquisitions that result
in the recognition of non-financial assets. When those assets are
recognized in the statement of financial position, the gains and losses
previously deferred in fair value and other reserves are transferred
from fair value and other reserves and included in the initial
acquisition cost of the asset. In order to apply for hedge accounting,
the forecasted transactions must be highly probable and the hedges
must be highly effective prospectively and retrospectively.
Dividends
Dividends are recognized in the consolidated financial statements
of the Group when approved by the Board of Directors and by the
Annual General Meeting of the Shareholders in accordance with
the Articles of Association of Nokia Solutions and Networks B.V.
Foreign currency translation
Functional and presentation currency
The financial statements of the majority of the Group’s entities are
measured using the currency of the primary economic environment
in which the entity operates (functional currency). The consolidated
financial statements are presented in euro, which is the functional
and presentation currency of the Parent.
Transactions in foreign currencies
Transactions in foreign currencies are recorded at the rates of
exchange prevailing at the dates of the individual transactions. For
practical reasons, a rate that approximates the actual rate at the date
of the transaction is often used. At the end of an accounting period,
the unsettled balances on foreign currency monetary assets and
liabilities are valued at the rates of exchange prevailing at the end
Annual Report 2013
Foreign group companies
In the consolidated financial statements, all income and expenses of
foreign group companies, where the functional currency is other than
euro, are translated into euro at the average foreign exchange rates
for the accounting period. All assets and liabilities of foreign group
companies are translated into euro at the foreign exchange rates at
the end of the accounting period. Differences resulting from the
translation of income and expenses at the average rate and assets
and liabilities at the closing rate are recognized as translation
differences in other comprehensive income. On the disposal of all
or part of a foreign group company by sale, liquidation, repayment
of share capital or abandonment, the cumulative amount or
proportionate share of the translation difference is recognized
as income or expense in the same period in which the Group
loses control.
Foreign group companies in hyperinflationary economies
The financial statements of foreign group companies, where the
functional currency is the currency of a hyperinflationary economy,
are adjusted to reflect changes in general purchasing power. In such
instances, non-monetary items in the statement of financial position
and all items in the income statement should be expressed in terms
of the measuring unit current at the end of the accounting period.
These items are restated through the application of a general price
index. The comparatives, which were presented as current year
amounts in the prior-year financial statements in a stable currency,
are not restated. After the financial statements have been restated
in the current purchasing power, all amounts for the current period
are then translated into the stable currency at the closing rate for
inclusion in the consolidated financial statements. Inflationary gains
and losses on the net monetary position are recognized as gains
and losses in the income statement.
Financial statements
Cash flow hedges: Hedging of cash flow variability on variable
rate liabilities
The Group applies cash flow hedge accounting for hedging cash
flow variability on certain variable rate liabilities. The effective portion
of the gain or loss relating to interest rate swaps hedging variable rate
borrowings is deferred in fair value and other reserves. The gain or
loss relating to the ineffective portion is recognized immediately in
the income statement. For hedging instruments settled before
the maturity date of the related liability, hedge accounting will
immediately discontinue from that date onwards, with all the
cumulative gains and losses on the hedging instruments recycled
gradually to the income statement when the hedged variable interest
cash flows affect the income statement.
of the accounting period. Foreign exchange gains and losses arising
from statement of financial position items and the fair value changes
in the related hedging instruments are reported in financial income
and expenses. For non-current available-for-sale investments, such
as shares, the unrealized foreign exchange gains and losses are
recognized in other comprehensive income.
Provisions
Provisions are recognized when the Group has a present legal or
constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation and
a reliable estimate of the amount can be made. When the Group
expects a provision to be reimbursed, the reimbursement is
recognized as an asset only when the reimbursement is virtually
certain. The Group assesses the adequacy of its existing provisions
and adjusts the amounts as necessary based on actual experience
and changes in facts and circumstances at each statement of
financial position date.
Restructuring provisions
The Group provides for the estimated cost to restructure when a
detailed formal plan of restructuring has been completed, approved
by management and the restructuring plan has been announced.
Restructuring costs consist primarily of personnel restructuring
charges. The other main components are costs associated with
the closure of manufacturing sites and exiting real estate locations,
divestment related charges and impairment charges.
59
60
Notes to the Consolidated Financial Statements
Project loss provisions
The Group provides for onerous contracts based on the lower of
the expected cost of fulfilling the contract and the expected cost
of terminating the contract.
Warranty provisions
The Group provides for the estimated liability to repair or replace
products under warranty at the time revenue is recognized. The
provision is an estimate based on historical experience of the level
of repairs and replacements.
Other provisions
The Group provides for other contractual obligations based on the
expected cost of executing any such contractual commitments.
Discontinued operations
Discontinued operations are reported when a component of the
Group comprises operations and cash flows that can be clearly
distinguished, operationally and for financial reporting purposes,
from the rest of the Group. A discontinued operation is a component
of the Group that either has been disposed of or is classified as held
for sale and (1) represents a major line of business or geographical
area of operations, and (2) is part of a single coordinated plan to
dispose of a separate major line of business or geographical area of
operations. Profit or loss from discontinued operations is reported
separately from income and expenses from continuing operations in
the consolidated statement of income, with prior periods presented
on a comparative basis. Cash flows for discontinued operations are
presented separately in the notes to the consolidated financial
statements.
Non-current assets and disposal groups held for sale
Non-current assets and disposal groups are classified as held for
sale when the carrying amount is expected to be recovered
principally through a sale transaction rather than through continuing
use. For this to be the case, the asset or disposal group must be
available for immediate sale in its present condition subject only to
terms that are usual and customary for sales of such assets or
disposal groups and the sale must be highly probable. These assets,
or in the case of disposal groups, assets and liabilities, are presented
separately in the consolidated statement of financial position and
measured at the lower of the carrying amount and fair value less
costs of disposal. Non-current assets classified as held for sale,
or included in a disposal group that is classified as held for sale,
are not depreciated.
Leases
Leases are classified as finance leases whenever the terms of the
lease transfer substantially all the risks and rewards of ownership
to the lessee. All other leases are classified as operating leases.
The Group has entered into various operating lease contracts. The
related payments are treated as rental expenses and recognized in
the income statement on a straight-line basis over the lease terms
unless another systematic approach is more representative of the
time pattern of the Group’s benefit.
Use of estimates and critical accounting judgments
The preparation of financial statements in conformity with IFRS
requires the application of judgment by management in selecting
appropriate assumptions for calculating financial estimates, which
inherently contain some degree of uncertainty. Management bases
its estimates on historical experience, expected outcomes and
various other assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis for making
judgments about the reported carrying values of assets and liabilities
and the reported amounts of revenues and expenses that may not be
readily apparent from other sources. The Group will revise material
estimates if changes occur in the circumstances on which an
estimate was based or as a result of new information or more
experience. Actual results may differ from these estimates under
different assumptions or conditions.
Set forth below are areas requiring significant judgment and
estimation that may have an impact on reported results and the
financial position.
Revenue recognition
The majority of the Group’s sales are recognized as revenue when
the significant risks and rewards of ownership have transferred to
the buyer, continuing managerial involvement usually associated with
ownership and effective control have ceased, the amount of revenue
can be measured reliably, it is probable that the economic benefits
associated with the transaction will flow to the Group and the costs
incurred or to be incurred in respect of the transaction can be
measured reliably. Sales could materially change if management’s
assessment of such criteria changes.
The Group enters into transactions involving multiple components
consisting of any combination of hardware, services and software.
Within multiple element arrangements, separate components are
identified and accounted for based on the nature and fair value of
those components and considering the economic substance of
the entire arrangement. Revenue is allocated to each separately
identifiable component based on the relative fair value of each
component. The Group determines the fair value of each component
by taking into consideration factors such as the price of the
component when sold separately and the component cost plus
a reasonable margin when price references are not available.
This determination of the fair value and allocation thereof to each
separately identifiable component of a transaction requires the use
of estimates and judgment which may have a significant impact on
the timing and amount of revenue recognized for the period.
Revenue from contracts involving solutions achieved through
the modification of complex telecommunications equipment
is recognized on the percentage of completion basis when the
outcome of the contract can be estimated reliably. Recognized
revenues and profits are subject to revisions during the project in
the event that the assumptions regarding the overall project outcome
are revised. Current sales and profit estimates for projects may
materially change due to the early stage of a long-term project,
new technology, changes in the project scope, changes in costs,
changes in timing, changes in customers’ plans, realization of
penalties, and other corresponding factors which may have a
significant impact on the timing and amount of revenue recognition.
Refer to Note 4, Revenue recognition.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
Pensions
The determination of pension obligations and expenses for defined
benefit pension plans is dependent on the Group’s selection of
certain assumptions used by actuaries in calculating such amounts.
Those assumptions include, among others, the discount rate, future
mortality rate, expected long-term rate of return on plan assets and
annual rate of increase in future compensation levels. A proportion
of plan assets is invested in equity securities, which are subject
to equity market volatility. Changes in assumptions and actuarial
conditions may materially affect the pension obligation and future
expense. Refer to Note 8, Pensions.
Income taxes
Management judgment is required in determining current tax
expense, uncertain tax positions, deferred tax assets and liabilities
and the extent to which deferred tax assets can be recognized. Each
reporting period deferred tax assets are assessed for realizability and
when circumstances indicate it is no longer probable that deferred
tax assets will be utilized, they are adjusted as necessary.
At December 31, 2013, the Group has a total of approximately
EUR 1.5 billion unrecognized net deferred tax assets, of which
approximately EUR 1.3 billion relate to Finland (calculated at the
Finnish corporate tax rate of 20%) that have not been recognized
in the consolidated financial statements. A significant portion of
the Group’s Finnish deferred tax assets are indefinite in nature
and available against future Finnish taxable income. The Group
will continue to closely monitor the realizability of these deferred tax
assets, including assessing future financial performance in Finland.
Business combinations
The Group applies the acquisition method of accounting to account
for acquisitions of separate entities or businesses. The consideration
transferred in a business combination is measured as the aggregate
of the fair values of the assets transferred, liabilities incurred towards
the former owners of the acquired business and equity instruments
issued. Identifiable assets acquired and liabilities assumed by the
Group are measured separately at their fair values as of the
acquisition date. Non-controlling interests in the acquired business
are measured separately based on their proportionate share of the
identifiable net assets of the acquired business. The excess of the
aggregate of the consideration transferred over the acquisition date
fair values of the identifiable net assets acquired is recorded as
goodwill. The determination and allocation of fair values to the
identifiable assets acquired and liabilities assumed is based on
various valuation assumptions requiring management judgment.
Actual results may differ from the forecasted amounts and
the difference could be material. Refer to Note 12, Acquisitions
and disposals.
Annual Report 2013
Fair value of derivatives and other financial instruments
The fair value of financial instruments that are not traded in an active
market (for example, unlisted equities and embedded derivatives)
is determined using various valuation techniques. The Group uses
judgment to select an appropriate valuation methodology as well
as underlying assumptions based on existing market practice and
conditions. Changes in these assumptions may cause the Group to
recognize impairments or losses in future periods. Refer to Note 20,
Fair value of financial instruments, Note 21, Derivative financial
instruments and Note 35, Financial and capital risk management.
Customer financing
The Group has provided a limited number of customer financing
arrangements and agreed extended payment terms with selected
customers. Should the actual financial position of the customers or
general economic conditions differ from assumptions, the ultimate
collectability of such financing and trade credits may be required to
be reassessed, which could result in a write-down of these balances
and thus negatively impact future profits. The Group endeavors to
mitigate this risk through the transfer of its rights to the cash collected
from these arrangements to third-party financial institutions on a
non‑recourse basis in exchange for an upfront cash payment. Refer
to Note 20, Fair value of financial instruments.
Financial statements
Liabilities for uncertain tax positions are recorded based on
estimates and assumptions when, despite management’s belief
that tax return positions are supportable, it is more likely than not
that certain positions will be challenged and may not be fully
sustained upon review by tax authorities. Furthermore, the Group
has ongoing tax investigations in multiple jurisdictions. If the final
outcome of these matters differs from the amounts initially recorded,
differences may impact the income tax expense in the period in
which such determination is made. Refer to Note 14, Income tax
expense and Note 19, Deferred taxes.
Assessment of the recoverability of long-lived and
intangible assets and goodwill
The recoverable amounts (the higher of fair value less costs of
disposal and value-in-use) for long-lived assets, intangible assets
and goodwill have been determined based on the expected future
cash flows attributable to the asset or cash-generating unit,
discounted to present value. The key assumptions applied in the
determination of the recoverable amount include the discount rate,
length of the explicit forecast period and estimated growth rates,
profit margins and the level of operational and capital investment.
Amounts estimated could differ materially from what will actually
occur in the future. Refer to Note 13, Impairment.
Allowances for doubtful accounts
The Group maintains allowances for doubtful accounts for estimated
losses resulting from the subsequent inability of customers to make
the required payments. If the financial conditions of customers were
to deteriorate, reducing their ability to make payments, additional
allowances may be required. Refer to Note 23, Allowances for
doubtful accounts.
Inventory related allowances
The Group periodically reviews inventory for excess amounts,
obsolescence and declines in net realizable value below cost and
records an allowance against the inventory balance for any such
declines. These reviews require management to estimate future
demand for products. Possible changes in these estimates could
result in revisions to the valuation of inventory in future periods.
Refer to Note 22, Inventories.
Provisions
Provisions are recognized when the Group has a present legal or
constructive obligation as a result of past events, it is probable that
an outflow of resources will be required to settle the obligation and
a reliable estimate of the amount can be made.
61
62
Notes to the Consolidated Financial Statements
Restructuring provisions
The Group provides for the estimated future cost related to
restructuring programs. The restructuring provision is based on
management’s best estimate. The estimate is based on approved
restructuring programs or past history of restructuring programs
in calculating the termination costs of affected employees.
Restructuring costs primarily relate to personnel restructuring
and changes in estimates of timing or amounts of costs to be
incurred may become necessary as the restructuring program
is implemented. Refer to Note 29, Provisions.
Project loss provisions
The Group provides for onerous contracts based on the lower of
the expected cost of fulfilling the contract and the expected cost
of terminating the contract. Due to the long-term nature of customer
projects, changes in estimates of costs to be incurred, and therefore
project loss estimates, may become necessary as the projects
are executed. Refer to Note 29, Provisions.
Warranty provisions
The Group provides for the estimated cost of product warranties
at the time revenue is recognized. The Group’s warranty provision
is established based upon best estimates of the amounts necessary
to settle future and existing claims on products sold as of each
statement of financial position date. As new products incorporating
complex technologies are continuously introduced, and as local
laws, regulations and practices may change, changes in these
estimates could result in additional allowances or changes to
recorded allowances being required in future periods. Refer to
Note 29, Provisions.
New accounting pronouncements under IFRS
The Group will adopt the following new standard issued by the IASB:
IFRS 9, Financial Instruments, reflects the first phase of the IASB’s
work on the replacement of IAS 39 and will change the classification
and measurement of the Group’s financial assets. The Group is
planning to adopt the standard on the revised effective date (of not
earlier than January 1, 2018). The Group will assess the full impact of
IFRS 9 when all phases have been completed and the final standard
is issued.
The amendments described below will be adopted on January 1,
2014 and they are not expected to have a material impact on the
results of operations and the financial position of the Group:
Amendment to IAS 32, Offsetting Financial Assets and Financial
Liabilities, clarifies the meaning of “currently has a legally enforceable
right to set-off”.
Amendments to IAS 36, Recoverable Amount Disclosures for
Non-Financial Assets, adds guidance on the disclosure of
recoverable amounts and discount rates.
Amendments to IAS 19, Defined Benefit Plans: Employee
Contributions, amends IAS 19, Employee Benefits to clarify the
requirements that relate to how contributions from employees or
third parties that are linked to service should be attributed to periods
of service.
IFRIC 21, Levies, an interpretation of IAS 37, Provisions, contingent
liabilities and contingent assets, clarifies that the obligating event
giving rise to a liability to pay a levy to a government agency is the
activity that triggers the payment.
Legal contingencies
Legal proceedings covering a wide range of matters are pending
or threatened in various jurisdictions against the Group. Provisions
are recorded for pending litigation when it is determined that an
unfavorable outcome is probable and the amount of loss can be
reasonably estimated. Due to the inherent uncertain nature of
litigation, the ultimate outcome or actual cost of settlement may
materially vary from estimates. Refer to Note 29, Provisions.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
2 Specific items
The Group separately identifies and discloses certain items, referred to as specific items, by virtue of size, nature or occurrence, including
restructuring charges, country/contract exit charges, purchase price accounting (‘PPA’) related charges and asset impairment charges. This
is consistent with the way that financial performance is measured by management and reported to the senior management team and Board
of Directors and it assists in providing a meaningful analysis of operating results by excluding items that may not be indicative of the operating
results of the Group’s business.
In November 2011, the Group announced its strategy to focus on mobile broadband and services. This involved a decision to focus the
Group’s portfolio on its core profitable businesses and sell or ramp down non-core businesses. The Group also reviewed certain
underperforming countries or contracts with a view to exiting if necessary. At the same time, the Group announced its intention to reduce its
workforce by 17 000 employees by the end of 2013. In 2012 and 2013, the Group made significant progress in executing this plan in terms of
focusing on mobile broadband and services, divesting several businesses, exiting certain underperforming customer contracts, withdrawing
from certain countries and making significant reductions in headcount. The associated charges are included in the tables below.
The following table presents specific items included in the operating profit/loss for the Group’s continuing operations for the years ended
December 31:
Country/
contract exit
and mergerRestructuring
related
charges
charges
EURm
PPA related
charges
Other
one-time
charges
Total
148
24
26
58
43
22
–
–
–
30
–
23
82
–
–
–
–
–
76
22
170
47
108
134
95
Total
299
52
105
98
554
2012
Cost of sales
Research and development expenses
Selling and marketing expenses
Administrative and general expenses
Other expenses
564
170
116
155
50
89
–
–
–
18
–
38
266
–
4
–
–
–
87
6
653
208
382
242
78
1 055
107
308
93
1 563
28
26
17
13
19
12
2
5
23
–
11
79
308
1
–
–
–
–
–
–
51
107
330
37
19
103
42
399
–
544
Total
2011
Cost of sales
Research and development expenses
Selling and marketing expenses
Administrative and general expenses
Other expenses
Total
Financial statements
2013
Cost of sales
Research and development expenses
Selling and marketing expenses
Administrative and general expenses
Other income and expenses
The following table presents specific items included in the operating profit/loss for the Group’s discontinued operations, Optical Networks, for
the years ended December 31:
2013
2012
Restructuring
charges
Other
one-time
charges
Total
Cost of sales
Research and development expenses
Other expenses
–
–
115
–
–
6
Total
115
6
EURm
Annual Report 2013
2011
Restructuring
charges
Other
one-time
charges
Total
Total
–
–
121
1
6
–
–
–
23
1
6
23
–
2
–
121
7
23
30
2
63
64
Notes to the Consolidated Financial Statements
In 2013, restructuring charges consist primarily of personnel restructuring charges of EUR 203 million. The other main components are real
estate exit costs and charges of EUR 42 million incurred in connection with the disposal of divested businesses (refer to Note 12, Acquisitions
and disposals).
In 2012, restructuring charges consisted primarily of personnel restructuring charges of EUR 911 million. The other main components were
real estate exit costs and a net loss of EUR 50 million arising from the sale of divested businesses (refer to Note 12, Acquisitions and
disposals). In 2011, restructuring charges consisted primarily of personnel restructuring charges of EUR 68 million and impairment charges
as a result of writing down the carrying amount of certain disposal groups classified as held for sale to fair value less costs of disposal.
Country/contract exit charges relate to the realignment of the Group’s customer contract and geographic market portfolio and the related
charges to terminate certain underperforming contracts and to withdraw from certain countries in line with the Group’s restructuring program.
In 2011, merger related charges related to the realignment of the product portfolio and the related charges to replace discontinued products
at customer sites in connection with the Group’s formation.
Purchase price accounting related charges primarily consist of the amortization of finite lived intangible assets (customer relationships,
developed technology and licenses to use tradename and trademark) recognized in the purchase price allocation arising from the Group’s
formation and subsequent business combinations. The purchase price accounting related charges arising from the Group’s formation were
fully amortized at the end of the first quarter of 2013.
In 2013, the other one-time charges included in administrative and general expenses consist of consultancy fees incurred in connection with
the Group’s ongoing restructuring program. The other one-time charges included in other income and expenses for continuing operations
relate to a provision in connection with the closure of a manufacturing facility. The specific items for the Group’s discontinued operations
consist of a loss of EUR 115 million on disposal of the Optical Networks business and an impairment charge of EUR 6 million (see Note 12,
Acquisitions and disposals and Note 13, Impairment).
In 2012, the other one-time charges consisted of consultancy fees in connection with the restructuring program included in administrative
and general expenses and impairment charges of EUR 6 million for continuing operations and EUR 23 million for discontinued operations
included in other expenses in the consolidated income statement (refer to Note 13, Impairment).
3 Segment information
The Group’s chief operating decision-maker (‘CODM’) is the Executive Management Team which was established in the first quarter of 2013
based on changes in the Group’s primary decision-making bodies. The Executive Management Team assumes the responsibilities and
decision-making scope of the former group of executive officers which comprised of the Chief Executive Officer, the Chief Financial Officer
and the Chief Operating Officer. Operating segments have been determined based on the information reviewed by the chief operating
decision-maker for the purposes of allocating resources and assessing performance and are consistent with previous years.
The chief operating decision-maker considers the business from both a geographic and product perspective. The set of components that
constitutes the Group’s operating segments has been determined by reference to the core principle governing segment reporting, that is,
based on the provision of information that enables evaluation of the nature and financial effects of the business activities in which the Group
engages and the economic environments in which it operates. Disclosure of information by product dimension is considered to best fulfill
this requirement.
The Group consists of three product-based operating segments: Mobile Broadband, Global Services and Non-core. Mobile Broadband
provides flexible and adaptable network solutions for mobile voice and data services. Global Services provides mobile operators with a
broad range of services from network planning and optimization to network implementation, system integration and care services, as well
as managed services for network and service operations. The Non-core segment does not qualify as a reportable segment in 2013, 2012
and 2011 as it represents less than 10% of the Group’s revenue, operating results and assets. At December 31, 2012 Optical Networks
was classified as a disposal group held for sale and as it had represented a separate major line of business in the past, it was presented
as discontinued operations (refer to Note 31, Non-current assets and disposal groups classified as held for sale). As such, it was excluded
from segment reporting.
Management assesses the performance of the operating segments based on a measure of operating profit that excludes specific items
(for an analysis of specific items, refer to Note 2, Specific items). Group level adjustments related to certain revenue transactions have been
allocated to the segments. The total allocation represents less than one percent of revenue for the years presented. The costs of central and
other support functions have been allocated to the segments based on the utilization of the respective resources. There are no transactions
between the segments. No measures of assets and liabilities by segment are reviewed by the chief operating decision-maker.
No single customer represents 10% or more of Group revenues.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
Segment data
Mobile
Broadband
EURm
Global
Services
All other
segments
Total
segments
Other
2013
Net sales
Operating profit/(loss) before specific items
Operating profit/(loss) % before specific items
Depreciation and amortization (excluding PPA related charges)
PPA related charges
Restructuring charges
5 347
420
7.9%
157
60
96
5 753
693
12.0%
50
44
164
55
(24)
(43.6)%
1
1
32
11 155
1 089
17
16
208
105
292
–
–
7
2012
Net sales
Operating profit/(loss) before specific items
Operating profit/(loss) % before specific items
Depreciation and amortization (excluding PPA related charges)
PPA related charges
Restructuring charges
6 043
490
8.1%
199
158
283
6 929
334
4.8%
66
130
414
365
(33)
(9.0)%
7
6
93
13 337
791
35
35
272
294
790
–
14
265
2011
Net sales
Operating profit/(loss) before specific items
Operating profit/(loss) % before specific items
Depreciation and amortization (excluding PPA related charges)
PPA related charges
Restructuring charges
6 335
216
3.4%
220
195
27
6 737
230
3.4%
71
119
24
573
(108)
(18.8)%
14
15
19
13 645
338
–
–
305
329
70
–
70
33
Total
11 172
1 105
9.9%
208
105
299
13 372
826
6.2%
272
308
1 055
13 645
338
2.5%
305
399
103
For an analysis of specific items, refer to Note 2, Specific items.
The Group’s financial statements for the years ended December 31, 2012 and December 31, 2011 reflect the retrospective application of IAS
19R, Employee Benefits (refer to Note 8, Pensions).
EURm
2013
2012
2011
Greater China
Japan
India
Asia Pacific
Middle East
Africa
1 191
1 387
641
1 235
644
451
1 276
2 175
734
1 274
682
554
1 457
1 534
911
1 176
816
579
Asia, Middle East and Africa
5 549
6 695
6 473
East Europe
West Europe1
South East Europe
Latin America
491
1 639
938
1 249
498
2 093
1 200
1 658
557
2 379
1 460
1 758
Europe and Latin America
4 317
5 449
6 154
North America
2
Total
Of which the Netherlands (country of domicile)
Of which the United States of America
1
2
1 306
1 228
1 018
11 172
13 372
13 645
67
1 255
111
1 198
185
945
Financial statements
Net sales by geographic area
The following table presents the Group’s net sales by geographic area by location of customer:
When sales to a country exceed 10% of the Group’s revenue in the current year, those countries are presented separately.
Annual Report 2013
65
66
Notes to the Consolidated Financial Statements
Non-current assets
The following table presents the Group’s largest countries in terms of non-current assets, which comprise intangible assets and property,
plant and equipment:
EURm
2013
2012
Finland
U.S.
China
India
Japan
Other
398
127
94
55
55
107
452
183
107
74
66
196
Total
836
1 078
–
–
2013
2012
2011
7 861
2 299
1 012
7 338
2 603
3 431
5 934
2 942
4 769
11 172
13 372
13 645
The Netherlands (country of domicile)
4 Revenue recognition
The following table presents net sales for continuing operations for the years ended December 31:
EURm
Sales of telecommunication equipment, software and related services
Revenue for managed services and network maintenance contracts
Contract sales recognized under percentage of completion accounting
Total net sales
The following table presents revenue recognition related items for construction contracts in progress at the end of the year that are included in
the consolidated statement of financial position:
2013
EURm
Contract revenues recorded prior to billings
Assets
Liabilities
162
Billings in excess of costs incurred
Assets
Liabilities
700
99
Advances received
Retentions
2012
216
14
23
58
100
All assets in the above table are included within accounts receivable and all liabilities are included within accrued expenses in the statement
of financial position.
The aggregate amount of costs incurred and recognized profits (net of recognized losses) for construction contracts in progress since
inception is EUR 13 049 million at December 31, 2013 (EUR 18 107 million in 2012).
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
5 Expenses by nature
The following table presents cost of sales, research and development expenses, selling and marketing expenses, and administrative and
general expenses by nature of expense:
EURm
Employee benefits expense
Cost of materials
Subcontractor costs1
Depreciation and amortization
Real estate charges
Other costs and expenses
Total
2013
2012
2011
3 479
2 731
2 278
313
287
1 426
4 405
3 704
2 982
587
385
1928
4 092
4 054
2 654
711
337
2 016
10 514
13 991
13 864
Subcontractor costs relate mainly to services performed within the Global Services business and research and development within the Mobile Broadband business.
1
6 Employee benefits expense
EURm
2013
2012
2011
Salaries and wages
Pension expenses1
Share-based payment expense/(income)
Other social expenses2
2 910
179
30
360
3 744
200
11
450
3 466
193
(8)
441
Total
3 479
4 405
4 092
The Group’s financial statements for the years ended December 31, 2012 and December 31, 2011 reflect the retrospective application of IAS 19R, Employee Benefits (refer
to Note 8, Pensions).
2
Training expenses are excluded from other social expenses in 2013 and have been excluded from other social expenses for comparability purposes in 2012 and 2011.
1
Financial statements
Pension expenses include expenses related to defined contribution plans of EUR 139 million (EUR 164 million in 2012 and EUR 153 million
in 2011) and defined benefit plans of EUR 40 million (EUR 36 million in 2012 and EUR 40 million in 2011), refer to Note 8, Pensions.
Employee benefits expense includes termination benefits. The average monthly number of employees in 2013 is 52 564 (64 052 in 2012
and 71 882 in 2011).
7 Share-based payment
The Group established a share-based incentive program in 2012 under which options are granted to senior management and other key
employees. Each option grant is approved by the Board of Directors. The options become exercisable on the fourth anniversary of the grant
date or, if earlier, upon the occurrence of certain corporate transactions such as an initial public offering (‘IPO’).
The exercise price of the options is based on a per share value on grant as determined for the purposes of the incentive program. The options
will be cash-settled at exercise unless an IPO has taken place, at which point they would be converted into equity-settled options. If the
awards are cash-settled, the holder will be entitled to half of the share appreciation based on the exercise price and the estimated value of
shares on the exercise date, unless there has been a change of control, as specified in the plan terms, in which case the holder will be entitled
to all of the share appreciation. If an IPO has not taken place by the sixth anniversary of the grant date, the Group will cash out any remaining
options. If an IPO has taken place, equity options remain exercisable until the tenth anniversary of the grant date. The gains that may be made
under the plan are also subject to a cap. The options are accounted for as a cash-settled share-based payment liability based on the
circumstances at December 31, 2013. The fair value of the liability is determined based on the reporting date estimated value of shares less
the exercise price of the options. For the purpose of estimating the share-based payment expense, it is assumed that the cash-settled
options would be exercised immediately by participants upon vesting four years after the grant date. Whether the outcome is accounted
for as a cash or equity-settled option, the maximum amount that could be awarded is capped under the terms of the program.
Annual Report 2013
67
68
Notes to the Consolidated Financial Statements
At December 31, 2013 there are 3 339 options outstanding under the share-based program (3 639 in 2012). The total carrying amount for
liabilities arising from share-based payment transactions is EUR 41 million at December 31, 2013 (EUR 11 million in 2012) and is accrued in
salaries and wages (refer to Note 30, Accrued expenses) in the consolidated statement of financial position.
Refer to Note 6, Employee benefits expense, for the share-based payment expense recognized in the consolidated income statement.
In the event that an IPO does occur, the share-based payment expense related to the equity-settled options will be measured based on the
original grant date fair value.
8 Pensions
The Group operates a number of post-employment plans in various countries including both defined contribution and defined benefit
schemes. The defined benefit plans expose the Group to actuarial risks such as, investment risk, interest rate risk, life expectancy risk and
salary risk. The characteristics of the defined benefit plans and the risks associated with them vary depending on legal, fiscal, and economic
requirements in each country.
Change in accounting policy
At January 1, 2013, the Group adopted the revised IAS 19, Employee Benefits. Actuarial gains and losses under the revised standard require
immediate recognition in other comprehensive income (‘OCI’) and such balances are excluded permanently from the consolidated income
statement. Previously, all actuarial gains and losses were deferred in accordance with the corridor method.
Calculation of the pension expense has been simplified under the revised standard and the related impacts to the Group’s loss presented in
the historical comparative consolidated income statements are not material. The main changes relate to the fully recognized actuarial gains
and losses which impact the relevant net pension assets and liabilities and other comprehensive income.
The revised IAS 19 requires retrospective application for all financial statements presented. Accordingly, the adjustments resulting from the
implementation of the standard have been disclosed below with respect to the cumulative impact to shareholders’ equity for the years ended
December 31, 2011 and 2012.
EURm
At January 1, 2011
Shareholders’ equity:
Total Equity
Equity attributed to equity holders of parent
Equity attributed to non-controlling interests
EURm
Year ended December 31, 2011
Impact to Statement of Financial Position:
Defined benefit pension assets
Non-current deferred tax assets
Defined benefit pension obligations1
Non-current deferred tax liabilities
Total equity
Equity attributable to equity holders of parent
Equity attributable to non-controlling interests
Impact to Consolidated Income Statement and
Other Comprehensive Income:
Loss for the year (attributable to equity holder of the parent)
Other Comprehensive Income
Remeasurements on defined benefit pension plans
Income taxes related to components of other comprehensive income
Reported
Adjustments
Adjusted
3 445
3 350
95
21
21
–
3 466
3 371
95
Reported
Adjustments
Adjusted
31
587
114
32
3 814
3 698
116
(1)
2
14
(1)
(12)
(12)
–
30
589
128
31
3 802
3 686
116
(710)
2
(708)
–
–
(50)
15
(50)
15
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
EURm
Year ended December 31, 2012
Impact to Statement of Financial Position:
Defined benefit pension assets
Non-current deferred tax assets
Defined benefit pension obligations1
Non-current deferred tax liabilities
Total equity
Equity attributable to equity holders of parent
Equity attributable to non-controlling interests
Impact to Consolidated Income Statement and
Other Comprehensive Income:
Loss for the year (attributable to equity holder of the parent)
Other Comprehensive Income
Remeasurements on defined benefit pension plans
Income taxes related to components of other comprehensive income
Reported
Adjustments
Adjusted
41
470
114
29
2 452
2 326
126
(13)
6
162
(4)
(165)
(165)
–
28
476
276
25
2 287
2 161
126
(1 463)
4
(1 459)
–
–
(165)
8
(165)
8
Defined benefit pension obligations include EUR 9 million in 2012 and EUR 5 million in 2011 reclassified to liabilities included in disposal groups classified as held for sale.
1
Defined benefit plans
The total net accrued pension cost of EUR 119 million (EUR 247 million in 2012) consists of an accrual of EUR 157 million included in other
long-term liabilities (EUR 275 million in 2012) and a prepayment of EUR 38 million included in other non-current assets (EUR 28 million in 2012).
In 2012, an amount of EUR 9 million was reclassified to liabilities included in disposal groups classified as held for sale (refer to Note 31,
Non-current assets and disposal groups classified as held for sale).
The Group’s most significant defined benefit plans are in Germany, the United Kingdom, India and Switzerland. Together they account for
90% (90% in 2012) of the Group’s total defined benefit obligation and 91% (91% in 2012) of the Group’s total plan assets.
The following table presents the defined benefit obligations, the fair value of plan assets, the effects of the asset ceiling and the net defined
benefit balance by country at December 31:
Present value of defined
benefit obligation
Fair value of
plan assets
Effects of
asset ceiling
Net defined
benefit balance
2013
2012
2013
2012
2013
2012
Germany
UK
India
Switzerland
Other
(923)
(98)
(85)
(78)
(130)
(1 043)
(97)
(91)
(91)
(155)
845
108
82
63
104
867
105
88
57
116
–
–
(1)
–
(6)
–
–
–
–
(3)
(78)
10
(4)
(15)
(32)
(176)
8
(3)
(34)
(42)
(1 314)
(1 477)
1 202
1 233
(7)
(3)
(119)
(247)
Total
2013
Financial statements
EURm
2012
Germany
The majority of active employees in Germany participate in the cash balance plan BAP (Beitragsorientierter Alterversorgungs Plan), formerly
known as Beitragsorientierte Siemens Alterversorgung (‘BSAV’). Individual benefits are generally dependent on eligible compensation levels,
ranking within the company and years of service. This plan is a partly funded defined benefit pension plan, the benefits of which are subject to
a minimum return guaranteed by the company. The funding vehicle for the BAP plan is the NSN Pension Trust e.V. The Trust is legally separate
from the Company and manages the plan assets in accordance with the respective trust agreements with the Company. Curtailments were
recognized in service costs for German pension plans during 2013 as a result of reduction in workforce.
United Kingdom
The Group has one defined benefit plan comprising of two sections, with both the money purchase section and the final salary section being
closed to future contributions and accruals as of April 30, 2012. Individual benefits are generally dependent on eligible compensation levels
and years of service for the defined benefit section of the plan and on individual investment choices for the defined contribution section of the
plan. The funding vehicle for the pension plan is the NSN Pension Plan that is run on a trust basis.
Annual Report 2013
69
70
Notes to the Consolidated Financial Statements
India
Government mandated gratuity and provident plans provide benefits based on years of service and projected salary levels at the date of
separation for the Gratuity Plan and through an interest rate guarantee on existing investments in a government prescribed Provident Fund
(‘PF’) Trust. Gratuity Plan assets are invested and managed through an insurance policy, Provident Fund assets are managed by NSN PF
Trustees through a pattern prescribed by the Government in various fixed income securities.
Switzerland
Pension plans are governed by the Swiss Federal Law on Occupational Retirements, Survivors’ and Disability Pension plans (BVG), which
stipulates that pension plans are to be managed by an independent, legally autonomous unit. In Switzerland, individual benefits are provided
through the collective foundation Profond. The plan’s benefits are based on age, years of service, salary and an individual old age account.
The funding vehicle for the pension scheme is the Profond Vorsorgeeinrichtung. During 2013, the collective foundation Profond has decided
to decrease their conversion rates in five years gradually from 7.2% to 6.8%, which will reduce the expected benefits at retirement for all
employees. This event qualifies as a plan amendment and the past service gain of EUR 1 million arising from this amendment was recognized
immediately in the service cost of the year.
The following tables present movements in the present value of the defined benefit obligation, fair value of plan assets and the impact of
minimum funding/asset ceiling:
EURm
At January 1, 2013
Current service cost
Interest (expense)/income
Past service cost and gains and losses on curtailments
Settlements
Remeasurements:
Return on plan assets, excluding amounts recognized in net interest
Gain from change in demographic assumptions
Gain from change in financial assumptions
Experience gains
Change in asset ceiling, excluding amounts recognized in net interest
Exchange differences
Contributions:
Employers
Plan participants
Payments from plans:
Benefit payments
Disposals
Other movements
At December 31, 2013
Present value
of defined
benefit
obligation
Fair value
of plan
assets
(1 477)
1 233
(244)
(3)
(247)
(41)
(50)
5
12
–
42
–
(8)
(41)
(8)
5
4
–
–
–
–
(41)
(8)
5
4
(74)
34
(40)
–
(40)
–
4
88
5
–
14
–
–
–
–
14
4
88
5
–
–
–
–
–
(4)
14
4
88
5
(4)
97
14
111
(4)
107
30
(27)
3
–
3
–
(13)
29
13
29
–
–
–
29
–
45
83
(5)
(22)
(72)
–
23
11
(5)
–
–
–
23
11
(5)
140
(79)
61
–
61
(1 314)
1 202
(112)
(7)
(119)
Total
Effects of
asset
ceiling
Total
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
EURm
At January 1, 2012
Present value
of defined
benefit
obligation
Fair value
of plan
assets
(1 221)
1 124
Current service cost
Interest (expense)/income
Past service cost and gains and losses on curtailments1
Settlements
(50)
(58)
13
12
(97)
(9)
47
(36)
60
(206)
(18)
–
(2)
Total
(99)
(50)
(2)
13
3
–
(36)
60
(206)
(18)
–
(1)
60
(206)
(18)
(1)
(1)
(165)
(224)
60
(164)
2
(1)
1
1
–
(15)
31
15
31
–
31
–
47
14
3
(32)
(12)
1
15
2
4
15
2
4
51
2
53
–
53
(1 477)
1 233
(244)
(3)
(247)
Exchange differences
Contributions:
Employers
Plan participants
Payments from plans:
Benefit payments
Disposals
Other movements
At December 31, 2012
Total
(50)
(2)
13
3
56
(83)
Remeasurements:
Return on plan assets, excluding amounts recognized in net interest
Loss from change in financial assumptions
Experience losses
Change in asset ceiling, excluding amounts recognized in net interest
Effects of
asset
ceiling
In 2012, the Group recognized curtailments related to restructuring in various countries including Germany, Belgium, Switzerland and the Netherlands.
1
Present value of obligations includes EUR 425 million (EUR 239 million in 2012) of wholly funded obligations, EUR 860 million of partly funded
obligations (EUR 1 202 million in 2012) and EUR 29 million (EUR 36 million in 2012) of unfunded obligations.
Financial statements
The following table presents amounts recognized in the consolidated income statement:
EURm
2013
2012
2011
Current service cost
Past service cost (including curtailments)
Net interest cost
Settlements
41
(5)
8
(4)
50
(13)
2
(3)
47
(2)
1
(6)
Total, included in employee benefits expense
40
36
40
2013
2012
2011
14
4
88
5
(4)
60
–
(206)
(18)
(1)
(50)
–
(12)
6
6
107
(165)
(50)
The following table presents movements in pension remeasurements recognized in other comprehensive income:
EURm
Return on plan assets (excl. interest income), gain/(loss)
Changes in demographic assumptions, gain
Changes in financial assumptions, gain/(loss)
Experience adjustments, gain/(loss)
Current year change in asset ceiling
Total remeasurement included in OCI
Annual Report 2013
71
72
Notes to the Consolidated Financial Statements
Actuarial assumptions
The following table presents principal actuarial weighted average assumptions used for determining the defined benefit obligation:
%
2013
2012
Discount rate for determining present values
Annual rate of increase in future compensation levels
Pension growth rate
Inflation rate
4.06
2.35
1.73
1.96
3.54
2.36
1.64
1.82
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each
country. The following table presents the discount rates and mortality tables that have been used for the significant plans:
Discount rate %
Germany
United Kingdom
India
Switzerland
Total weighted average for all countries
Mortality table
2013
2012
3.70
4.50
9.00
2.20
4.06
3.20
4.10
8.30
1.60
3.54
2013
Richttafeln 2005 G
S1NA Light1
LIC (2006-08) Ultimate
BVG2010G
Tables unadjusted for males and rated down by two years for females.
1
The following table presents the sensitivity of the defined benefit obligation to changes in the principal actuarial assumptions:
(Increase)/decrease of
defined benefit obligation
EURm
Discount rate for determining present values
Annual rate of increase in future compensation levels
Pension growth rate
Inflation rate
Life expectancy
Change in
assumption
Increase in
assumption
Decrease in
assumption
1.0%
1.0%
1.0%
1.0%
1 year
158
(23)
(113)
(122)
(21)
(207)
20
111
114
21
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant and may not be
representative of the actual impact of changes. If more than one assumption is changed simultaneously, the combined impact of changes will
not necessarily be the same as the sum of the individual changes. If the assumptions change to a different level to that presented above, the
effect on the defined benefit obligation may not be linear. The methods and types of assumptions used in preparing the sensitivity analyses
are the same as in the previous period.
When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method has been applied as
when calculating the post-employment benefit obligation recognized in the statement of financial position; specifically, the present value of
the defined benefit obligation calculated with the projected unit credit method. Increases and decreases in the discount rate, rate of increase
in future compensation levels, pension growth rate and inflation, which are used in determining the defined benefit obligation, do not have a
symmetrical effect on the defined benefit obligation primarily due to the compound interest effect created when determining the net present
value of the future benefit.
Investment strategies
The objective of investment activities is to maximize the excess of plan assets over the projected benefit obligations and to achieve asset
performance at least in line with the interest costs in order to minimize required future employer contributions. To achieve these goals, the
Group uses an asset-liability matching (‘ALM’) framework, which forms the basis for its strategic asset allocation of the respective plans.
The Group also takes into consideration other factors in addition to the discount rate, such as inflation and longevity. The results of the
asset-liability matching framework are implemented on plan level.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
The Group’s pension governance does not allow direct investments and requires all investments to be placed either in funds or by
professional asset managers. Derivative instruments are permitted and are used to change risk characteristics as part of the German plan
assets. The performance and risk profile of investments is constantly monitored on a stand-alone basis as well as in the broader portfolio
context. One risk is a decline in the plan’s funded status as a result of the adverse development of plan assets and/or defined benefit
obligations. The application of the ALM framework focuses on minimizing such risks. The process used by the Group to manage its
risk is the same as in the previous period.
Disaggregation of plan assets
The following table presents the composition of plan assets by asset category:
2013
EURm
2012
Quoted
Unquoted
Total
%
Quoted
Unquoted
Total
%
Asset category:
Equity securities
Debt securities
Insurance contracts
Real estate
Short-term investments
Other
300
564
–
–
92
–
–
66
66
57
–
57
300
630
66
57
92
57
25%
52%
5%
5%
8%
5%
296
630
–
–
49
–
–
60
62
62
–
74
296
690
62
62
49
74
24%
56%
5%
5%
4%
6%
Total
956
246
1 202
100%
975
258
1 233
100%
All short-term investments and equity securities, and nearly all fixed income securities have quoted market prices in active markets. Equity
securities represent investments in equity funds and direct investments. Debt securities represent investments in government and corporate
bonds, as well as investments in bond funds. Debt securities may also include investments in funds and direct investments. Insurance
contracts are customary pension insurance contracts structured under domestic law in the respective countries. Real estate investments
are investments in real estate funds which invest in a diverse range of real estate properties. Short-term investments are liquid assets or
cash which are held for a short period of time, with the primary purpose of controlling the tactical asset allocation. The other category
includes commodities as well as alternative investments, including derivative financial instruments.
Financial statements
Future cash flows
Employer contributions expected to be paid into the post-employment defined benefit plans in 2014 are EUR 19 million and the weighted
average duration of the defined benefit obligations is 14.2 years at December, 31 2013.
The following table presents expected maturity analysis of undiscounted payments from the defined benefit plans:
EURm
Pension benefits
Within
1 year
Between
1 and
5 years
Between
5 and
10 years
Between
10 and
20 years
Over
20 years
Total
25
116
223
758
1 721
2 843
9 Depreciation and amortization
The following table presents depreciation and amortization by function:
EURm
2013
2012
2011
Cost of sales
Research and development
Selling and marketing
Administrative and general
56
120
84
53
74
180
271
62
74
261
312
64
Total
313
587
711
The above table includes depreciation and amortization related to discontinued operations of EUR 11 million in 2012 and EUR 19 million
in 2011.
Annual Report 2013
73
74
Notes to the Consolidated Financial Statements
10 Other income and expenses
The following table presents other income:
EURm
Gains on hedging forecasted sales and purchases
Interest income from customer receivables and overdue payments
Rental income
Gains on sale of property, plant and equipment
Other
Total
2013
2012
2011
36
27
17
11
28
26
10
13
–
56
2
11
17
11
51
119
105
92
2013
2012
2011
43
42
37
24
24
22
15
19
40
50
18
6
18
38
20
33
33
19
26
–
(8)
(35)
8
36
226
223
79
2013
2012
2011
19
1
13
2
12
3
Other includes various amounts which are individually insignificant.
The following table presents other expenses:
EURm
Sale of receivables transactions
Divestments of businesses (Note 12, Note 13)
VAT and other indirect tax provisions
Country/contract exit charges
Losses on hedging forecasted sales and purchases
Bad debt write-offs and movements in doubtful account allowances
Losses on sale of property, plant and equipment
Other
Total
Other includes various amounts which are individually insignificant.
11 Financial income and expenses
EURm
Interest income on available-for-sale financial instruments
Other financial income
Total financial income
20
15
15
Interest expense on financial liabilities carried at amortized cost
Other financial expenses
(96)
(8)
(113)
(10)
(95)
(13)
Total financial expenses
(104)
(123)
(108)
Net foreign exchange gains/(losses):
From foreign exchange derivatives designated at fair value through profit and loss
From statement of financial position items revaluation
Net losses on other derivatives designated at fair value through profit and loss account
60
(119)
–
(28)
(171)
–
58
(114)
(2)
Total other financial results
Total
(59)
(199)
(58)
(143)
(307)
(151)
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
12 Acquisitions and disposals
Disposals treated as discontinued operations
On May 6, 2013 the Group concluded the sale of its Optical Networks business to Marlin Equity Partners. The disposal has been presented
as a discontinued operation for the years ended December 31, 2012 and 2013. The transaction involved the complete Optical Networks
product portfolio, services offering and existing customer contracts. The divestment was carried out as part of the implementation of the
Group’s strategy to focus on mobile broadband and services. The loss on disposal recognized is EUR 115 million, which is attributable to
the derecognition of the assets and liabilities transferred of EUR 75 million and payment of EUR 40 million cash to the acquiror. When the
Group disposes of businesses, gains and losses recorded at the date of disposal may change depending on the outcome of post closing
settlement negotiations.
The assets and liabilities disposed of were as follows:
EURm
May 6, 2013
Non-current assets
Deferred tax assets
11
Current assets
Inventories
Accounts receivable, net of allowances for doubtful accounts
80
19
Total assets disposed of
110
Non-current liabilities
Deferred tax liabilities
7
Current liabilities
Accrued expenses1
Provisions
23
5
Total liabilities disposed of
35
Accrued expenses include EUR 9 million relating to additional payments expected to be made to the buyer under the purchase price mechanism.
1
The results of the disposal group are included in the consolidated income statement up to the date of disposal.
EURm
2013
2012
2011
Net sales
Cost of sales
110
(72)
407
(283)
396
(302)
Gross profit
Research and development expenses
Selling and marketing expenses
Administrative and general expenses
Other expenses
38
(29)
(11)
(10)
(121)
124
(110)
(28)
(20)
(24)
94
(130)
(28)
(18)
–
Loss before tax from discontinued operations
Income tax expense
(133)
–
(58)
(5)
(82)
(5)
Loss for the year from discontinued operations
(133)
(63)
(87)
Financial statements
The results of discontinued operations, involving the Optical Networks business, are as follows for the years ended December 31:
In order to determine the results for the discontinued operations, revenues and costs have been allocated to the business only to the extent
that the Group will no longer be entitled to revenues or incur expenses once the business is disposed of.
Annual Report 2013
75
76
Notes to the Consolidated Financial Statements
Net cash flows from discontinued operations are as follows for the years ended December 31:
EURm
2013
2012
2011
Operating cash flow
Investing cash flow
(29)
(44)
(28)
(12)
(84)
(15)
Total cash flow
(73)
(40)
(99)
The financing of the Group is managed on a centralized basis and as such, there are no financing cash flows associated with discontinued operations.
Disposals not treated as discontinued operations
2013
The sale of the Business Support Systems business to Redknee Solutions, Inc. was completed on March 29, 2013. Assets, amounting to
EUR 26 million, and liabilities, amounting to EUR 17 million, were disposed of at the date of closing. Consideration received on the disposal
amounted to EUR 10 million in cash. The loss on disposal is EUR 1 million, after the deduction of EUR 2 million of other contractual net
expenses. The agreement with Redknee Solutions, Inc. includes an earn-out clause, which the Group does not expect to have a material
financial impact in 2014. The Business Support Systems business is reported in ‘All other segments’ in Note 3, Segment information.
The results of businesses disposed of are included in the consolidated income statement up to the date of disposal.
The assets and liabilities disposed of were as follows:
EURm
March 29, 2013
Non-current assets
Property, plant and equipment
10
Current assets
Inventories
Prepaid expenses and accrued income
3
13
Total assets disposed of
26
Accrued expenses
Provisions
14
3
Total liabilities disposed of
17
Additionally in 2013, the Group recognized charges of EUR 41 million in connection with settlements and other expenses arising from the
disposals of the WiMax, microwave transport and fixed line broadband access businesses, effected in 2012, which is included in other
expenses in the consolidated income statement.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
2012
In 2012, the Group divested several non-core businesses as part of the implementation of its strategy to focus on mobile broadband and
services. On January 11, 2012 the Group entered into an agreement with Motorola Solutions Inc. to transfer all assets and liabilities related to
the Norwegian nationwide TETRA Nødnett project, including associated employees. The transaction was completed on February 24, 2012.
The sale of the WiMax business to NewNet Communication Technologies, LLC was completed on February 3, 2012. On May 3, 2012 the
Group concluded the sale of its fixed line broadband access business to Adtran Inc., and on June 1, 2012 the initial closing of the transaction
to sell the microwave transport business to DragonWave Inc. was completed. Additionally, the Group carried out three other disposals that
did not have a material impact on the consolidated financial statements. The total net consideration paid in connection with 2012 disposals
amounted to EUR 124 million in cash and shares with fair market value of EUR 5 million were received.
The results of businesses disposed of were included in the consolidated income statement up to the date of disposal. The assets and
liabilities disposed of were as follows:
EURm
2012
Intangible assets
Inventories
Accounts receivable
Prepaid expenses and accrued income
1
24
28
1
Total assets disposed of
54
Accounts payable
Accrued expenses
Provisions
19
13
117
Total liabilities disposed of
149
Additionally, provisions of EUR 26 million were recognized for contractual obligations entered into at closing. A net loss of EUR 50 million arising
from the sale of these businesses was included in other expenses in the consolidated income statement for the year ended December 31, 2012.
There were no disposals in 2011.
Annual Report 2013
Financial statements
Acquisitions
On April 30, 2012 the Group completed the accounting for the Motorola Solutions’ networks business combination, which was effected on
April 30, 2011. The acquired business consisted of Motorola Solutions’ wireless networks infrastructure equipment manufacturing and sales
operations, including the GSM, CDMA, WCDMA, WiMAX and LTE product portfolios and services offerings, and was carried out through
a combination of asset and share deals. The business acquisition strengthened the Group’s position in certain regions, particularly North
America and Japan. The goodwill of EUR 164 million arising from the acquisition is attributable to the increased presence in these key
markets and the assembled workforce. The majority of the goodwill acquired is deductible for income tax purposes.
77
78
Notes to the Consolidated Financial Statements
The following table summarizes the final fair values of assets acquired, liabilities assumed and the non-controlling interest at the acquisition date:
EURm
Final
fair values
Total cash consideration
642
Non-current assets
Goodwill
Intangible assets subject to amortization:
Developed technology
Customer relationships
Other intangible assets
164
156
195
3
518
97
6
36
Property, plant and equipment
Investments in associates
Deferred tax assets
657
Current assets
Inventories
Accounts receivable
Prepaid expenses and accrued income
Bank and cash
103
222
20
31
Total assets acquired
376
1 033
Non-current liabilities
Deferred tax liabilities
Other long-term liabilities
15
15
30
Current liabilities
Accounts payable
Accrued expenses
Provisions
153
164
28
Total liabilities assumed
Non-controlling interest
345
375
16
Net assets acquired
642
The fair values of developed technology and customer relationships acquired in the deal have been estimated through relief from royalty and
excess earnings methods of valuation, respectively. Key assumptions applied in the valuation models included royalty rates ranging from 3%
to 10% for the developed technology, and a discount rate of 14.1% for customer relationships.
The acquisition of the Motorola Solutions’ networks business included a contingent consideration arrangement that required Motorola
Solutions to make installment payments to the Group subject to certain conditions being fulfilled by the Group. The maximum amount of
installment payments under the arrangement, EUR 85 million, was received, of which EUR 68 million was received in 2012 and EUR 17 million
in 2011. On receipt of the final payment in 2012, EUR 4 million was recognized in the consolidated income statement as the consideration
received was in excess of the fair value of the EUR 81 million receivable recognized.
The fair value of accounts receivable of EUR 222 million includes trade receivables with a fair value of EUR 146 million. The gross contractual
amount for trade receivables due at the date of acquisition was EUR 255 million, of which EUR 109 million was expected to be uncollectible.
Acquisition-related costs of EUR 4 million and EUR 8 million for 2011 and 2010, respectively, were included in the consolidated income
statement in administrative and general expenses.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
From the date of acquisition on April 30, 2011 the Group included net sales of EUR 894 million and a net loss of EUR 4 million for the year
ended December 31, 2011 in respect of the acquired Motorola Solutions’ networks business. The net loss included EUR 39 million related
to restructuring charges and EUR 48 million related to the amortization of acquired intangible assets and other purchase price accounting
related charges.
The Group’s net sales and net loss for the year ended December 31, 2011 would have been EUR 14 828 million and EUR 612 million,
respectively, had the acquisition occurred on January 1, 2011. This unaudited pro forma information is not necessarily indicative of the
results of the combined operations had the acquisition actually occurred on January 1, 2011 or indicative of the future results of the
combined operations.
The non-controlling interest (representing 49% of Motorola Solutions’ Hangzhou subsidiary) in the Motorola Solutions’ networks business
recognized at the acquisition date was measured at the present ownership interests’ proportionate share in the recognized amounts of the
acquiree’s net identifiable assets and amounted to EUR 16 million.
On January 3, 2011 the Group acquired 100% of the share capital of Iris Telekomünikasyon Mühendislik Hizmetleri A.S, a telecom and
engineering services provider with its headquarters in Istanbul, Turkey. The purchase consideration paid and goodwill arising from the
acquisition amounted to EUR 20 million and EUR 6 million, respectively.
13 Impairment
Goodwill
For the purpose of impairment testing, goodwill is allocated to the Group’s cash-generating units or groups of cash-generating units (‘CGUs’)
that are expected to benefit from the synergies of the business combination in which the goodwill arose.
The recoverable amounts of the groups of cash-generating units were determined based on fair value less costs of disposal. In the absence
of observable market prices, the fair values less costs of disposal were estimated based on an income approach, specifically a discounted
cash flow model. The level of the fair value hierarchy within which the fair value measurement is categorized is Level 3.
The cash flow projections employed in the model were based on financial plans approved by management covering an explicit forecast
period of three years. Cash flows in the subsequent periods reflect a realistic pattern of slowing growth that declines towards an estimated
terminal growth rate utilized in the terminal period. The terminal growth rates utilized do not exceed the long-term average growth rates for
the industry and economies in which the cash-generating units operate. The projections utilized are consistent with external sources of
information wherever available.
2013
Radio Access Networks group of CGUs in Mobile Broadband
Global Services group of CGUs
Total
2012
Radio Access Networks group of CGUs in Mobile Broadband
Global Services group of CGUs
Total
Carrying amount
of goodwill
EURm
Terminal
growth rate
%
Discount rate
post-tax
%
85
88
1.50
0.50
10.82
10.14
1.37
0.00
10.88
9.68
Financial statements
The key assumptions applied in the impairment testing analysis and goodwill allocated to each group of cash-generating units at December 31
are presented in the tables below:
173
90
92
182
Other key variables within the future cash flow projections utilized include assumptions around estimated sales growth, gross margin and
operating margin. Goodwill impairment testing was initially carried out at September 30, 2013 and re-performed at November 30, 2013 to align
the Group’s annual impairment testing with the annual financial planning cycle. The re-performance of the goodwill impairment testing did not
result in any changes to the goodwill carrying values.
Annual Report 2013
79
80
Notes to the Consolidated Financial Statements
The goodwill impairment testing analysis did not result in impairment charges. The recoverable amounts were EUR 3.1 billion and
EUR 3.9 billion for the Radio Access Networks group of CGUs and the Global Services group of CGUs, respectively. A sensitivity analysis
has been carried out with respect to the operating margin and the discount rate assumptions applied (gross margin and discount rate
assumptions applied in 2012). The recoverable amounts calculated based on the sensitized assumptions do not indicate impairment
in 2013 or 2012. Further, no reasonably possible changes in other key assumptions on which the Group has based its determination
of the recoverable amounts would result in impairment charges in 2013 or 2012.
Other intangible assets
In 2012, the Group recognized a charge of EUR 8 million on intangible assets in connection with its decision to cease product development
for certain operations. This impairment charge is included in other expenses in the consolidated income statement.
Property, plant and equipment
In 2013, the Group recognized an impairment charge of EUR 6 million on property, plant and equipment as a result of the remeasurement of
the Optical Networks disposal group at fair value less costs of disposal, prior to its divestment on May 6, 2013. Refer to Note 12, Acquisitions
and disposals. This impairment charge is included in loss for the year from discontinued operations in the consolidated income statement.
Investments in associates and other companies
In 2012, the Group recognized an impairment charge of EUR 6 million to adjust investment in one of its associates to the recoverable amount.
This impairment charge was recognized in other expenses in the consolidated income statement.
Non-current assets and disposal groups held for sale
In 2012, the Group recognized impairment charges of EUR 23 million on the property, plant and equipment of the Optical Networks business
(refer to Note 31, Non-current assets and disposal groups classified as held for sale). The impairment charge is included in loss for the year
from discontinued operations in the consolidated income statement.
In 2011, the Group recognized impairment charges totaling EUR 19 million as a result of writing down the carrying amount of certain disposal
groups classified as held for sale to the fair value less costs of disposal. The impairment charge is included within other expenses in the
consolidated income statement.
Other assets
In 2013, the Group recognized an impairment charge of EUR 2 million on the sale of an available-for-sale investment.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
14 Income tax expense
EURm
2013
2012
2011
Income tax expense/(benefit)
Current tax
Deferred tax
318
(50)
239
103
270
(35)
Total
268
342
235
4
264
(9)
351
(13)
248
268
342
235
Netherlands
Other countries
Total
The difference between the income tax expense computed at the statutory rate in the Netherlands of 25% and income tax expenses
recognized in the consolidated income statement is reconciled as follows at December 31:
EURm
2013
2012
2011
Income tax expense/(benefit) at statutory rate
Increase in valuation adjustments of deferred tax assets1
Permanent differences
Taxes for prior years
Net increase/(decrease) in uncertain tax positions
Changes in income tax rates
Effect of different statutory tax rates in foreign subsidiaries
Change of deferred tax liability on undistributed earnings
Benefit arising from previously unrecognized tax losses and temporary differences
Other
104
84
29
19
14
7
6
6
–
(1)
(259)
639
31
(18)
(24)
5
(28)
1
–
(5)
(94)
265
30
1
5
6
13
9
(9)
9
Total income tax expense
268
342
235
In 2013, this item primarily relates to Finnish tax losses and temporary differences and German temporary differences for which no deferred tax was recognized. In 2012, this
item primarily related to Finnish tax losses and temporary differences and German tax losses and temporary differences for which no deferred tax was recognized. In 2011,
this item primarily related to Finnish tax losses and temporary differences for which no deferred tax was recognized.
1
Financial statements
Income tax returns of certain Group companies for the years prior to and after the formation of the Group are under examination by the
relevant tax authorities. The Group does not believe that any significant additional taxes in excess of those already provided for will arise
as a result of these examinations.
Annual Report 2013
81
82
Notes to the Consolidated Financial Statements
15 Intangible assets
EURm
2013
2012
Goodwill
Acquisition cost January 1
Translation differences
Acquisitions1
182
(9)
–
173
(1)
10
Accumulated acquisition cost December 31
173
182
Net book value January 1
Net book value December 31
182
173
173
182
2 976
(20)
13
–
(6)
3 021
(2)
25
(51)
(17)
Other intangible assets
Acquisition cost January 1
Translation differences
Additions
Impairment losses
Disposals and retirements
Accumulated acquisition cost December 31
2 963
2 976
Accumulated amortization January 1
Translation differences
Disposals and retirements
Impairment losses
Amortization
(2 589)
1
5
–
(121)
(2 328)
(1)
16
43
(319)
Accumulated amortization December 31
(2 704)
(2 589)
Net book value January 1
Net book value December 31
387
259
693
387
Capitalized development costs2
Acquisition cost January 1
Disposals and retirements
816
(6)
823
(7)
Accumulated acquisition cost December 31
810
816
Accumulated amortization January 1
Disposals and retirements
Amortization
(816)
6
–
(817)
7
(6)
Accumulated amortization December 31
(810)
(816)
–
–
6
–
Net book value January 1
Net book value December 31
Goodwill adjustment resulting from a fair value adjustment relating to the acquisition of Motorola Solutions’ networks business (refer to Note 12, Acquisitions and disposals).
Capitalized development costs are included in other intangible assets in the consolidated statement of financial position.
1
2
At December 31, 2013, other intangible assets include customer relationships with a carrying value of EUR 125 million (EUR 217 million in
2012) and developed technology with a carrying value of EUR 100 million (EUR 131 million in 2012). The remaining amortization period ranges
from one to four years for customer relationships and two to four years for developed technology.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
16 Property, plant and equipment
EURm
Land and water areas
Acquisition cost January 1
Translation differences
Disposals and retirements
Accumulated acquisition cost December 31
2013
2012
10
–
(3)
9
1
–
10
9
10
263
(20)
24
–
(37)
266
(2)
32
(1)
(32)
Accumulated acquisition cost December 31
230
263
Accumulated depreciation January 1
Translation differences
Disposals and retirements
Depreciation
(113)
11
23
(35)
(96)
1
25
(43)
Accumulated depreciation December 31
(114)
(113)
Net book value January 1
Net book value December 31
150
116
170
150
1 531
(41)
127
–
(17)
(128)
–
1 673
–
173
(8)
(86)
(177)
(44)
Buildings and constructions
Acquisition cost January 1
Translation differences
Additions
Impairment losses
Disposals and retirements
Machinery and equipment
Acquisition cost January 1
Translation differences
Additions
Acquisitions¹
Impairment losses
Disposals and retirements
Assets classified as held for sale
Accumulated acquisition cost December 31
1 472
1 531
Accumulated depreciation January 1
Translation differences
Impairment losses
Disposals and retirements
Assets classified as held for sale
Depreciation
(1 199)
34
11
107
–
(157)
(1 247)
–
63
169
35
(219)
Accumulated depreciation December 31
(1 204)
(1 199)
332
268
426
332
17
(2)
7
–
36
(3)
13
(2)
–
(7)
(2)
(5)
(12)
(10)
13
17
404
509
Net book value January 1
Net book value December 31
Advance payments and fixed assets under construction
Net carrying amount January 1
Translation differences
Additions
Disposals and retirements
Transfers to:
Other intangible assets
Buildings and constructions
Machinery and equipment
Net carrying amount December 31
Total property, plant and equipment
Financial statements
7
10
7
Net book value January 1
Net book value December 31
Fair value adjustment relating to the acquisition of Motorola Solutions’ networks business (refer to Note 12, Acquisitions and disposals).
1
Annual Report 2013
83
84
Notes to the Consolidated Financial Statements
17 Principal group companies
The following table presents a list of the Group’s significant subsidiaries at December 31, 2013:
Country of
incorporation and
place of business
Primary nature of business
Group
ownership
interest
Group
voting
interest
Nokia Solutions and Networks Oy
Helsinki, Finland
Nokia Solutions and Networks US LLC
Delaware, U.S.
Nokia Solutions and Networks Japan Corp.
Tokyo, Japan
Nokia Solutions and Networks India Private Limited
New Delhi, India
Nokia Solutions and Networks System Technology (Beijing) Co., Ltd.
Beijing, China
Nokia Solutions and Networks Branch Operations Oy
Helsinki, Finland
Nokia Solutions and Networks Korea Ltd.
Seoul, South Korea
Nokia Solutions and Networks do Brasil Telecomunicações Ltda.
Sao Paolo, Brazil
Nokia Solutions and Networks Technology Service Co., Ltd.
Beijing, China
Sales and manufacturing company
Sales company
Sales company
Sales and manufacturing company
Sales company
Sales company
Sales company
Sales company
Sales company
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Company
18 Investments in associates
EURm
2013
2012
Net carrying amount of associates January 1
Translation differences
Additions
Share of results
Dividends
Impairment
Disposals
Share of other comprehensive income
31
(1)
2
8
(5)
–
–
1
28
–
–
8
–
(6)
(3)
4
Net carrying amount of associates December 31
36
31
The Group’s investments in associates are in unlisted companies in all years presented. The Group has immaterial interests in seven
associates. The reporting date of the financial statements used for calculation is within three months of the Group’s period end.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
19 Deferred taxes
EURm
2013
2012
Deferred tax assets:
Inter-company profit in inventory
Tax losses carried forward and unused tax credits 1
Non-current assets2, 3
Current assets, current liabilities and other provisions
Other temporary differences 1
Reclassification due to netting of deferred tax assets and liabilities on company level
48
128
282
299
5
(250)
58
98
301
320
–
(301)
Total deferred tax assets
512
476
Deferred tax liabilities:
Undistributed earnings
Non-current assets2, 3
Current assets, current liabilities and other provisions
Other temporary differences
Reclassification due to netting of deferred tax assets and liabilities on company level
(23)
(210)
(58)
(3)
250
(20)
(212)
(85)
(9)
301
Total deferred tax liabilities
(44)
(25)
Net balance
468
451
5
11
Tax credited to other comprehensive income at end of year3
Unused tax credits have been reclassified from other temporary differences to tax losses carried forward and unused tax credits in 2013 and reclassified for comparability
purposes in 2012.
2
Non-current assets include pension related deferred tax and purchase price accounting related amortization of intangible assets. Pension related deferred tax has been
reclassified from current assets, current liabilities and other provisions for comparability purposes in 2012.
3
The Group’s financial statements for the year ended December 31, 2012 reflect the retrospective application of IAS 19R, Employee Benefits (refer to Note 8, Pensions).
1
At December 31, 2013 the Group has loss carry forwards primarily attributable to group companies of EUR 3 134 million (EUR 3 051 million
in 2012), of which EUR 2 365 million (EUR 1 698 million in 2012) will expire within ten years.
Financial statements
At December 31, 2013 the Group has loss carry forwards and temporary differences of EUR 6 009 million (EUR 6 389 million in 2012)
and EUR 285 million of tax credits (EUR 237 million in 2012) for which no deferred tax assets were recognized in the consolidated financial
statements due to a history of recent losses in certain jurisdictions. The non-recognized deferred tax assets relate primarily to Finland
and Germany.
The amount of temporary differences for which no deferred tax assets were recognized was EUR 3 190 million (EUR 3 618 million in 2012)
and the corresponding amount of loss carry forwards was EUR 2 819 million (EUR 2 771 million in 2012). EUR 2 194 million of these loss carry
forwards (EUR 1 548 million in 2012) will expire within ten years and EUR 625 million (EUR 1 223 million in 2012) of these loss carry forwards
have no expiry date. Tax credits for which no deferred tax assets were recognized expire within five years.
At December 31, 2013, the Group has approximately EUR 1.5 billion of unrecognized net deferred tax assets, of which approximately
EUR 1.3 billion relate to Finland (calculated at 20% tax rate) and have not been recognized in the consolidated financial statements due to the
Group’s history of losses in Finland. A significant portion of the Finnish deferred tax assets are indefinite in nature and available against future
Finnish taxable income. The Group will continue to closely monitor the realizability of these deferred tax assets, including assessing future
financial performance in Finland. Should the recent improvements in financial results be sustained, all or part of the unrecognized deferred
tax assets may be recognized in the future.
The recognition of the remaining deferred tax assets is supported mainly by profit projections in the relevant jurisdictions.
The change in Group ownership (refer to Note 1, Accounting principles) has led to an indirect change in the ownership of entities in Germany
and as a result EUR 317 million of corporate tax losses and EUR 383 million of trade tax losses were forfeited in Germany. There is no income
statement impact in 2013 as the deferred tax asset on these losses was written off in 2012.
At December 31, 2013 the Group has undistributed earnings of EUR 311 million (EUR 347 million in 2012) for which no deferred tax liability
was recognized as these earnings will not reverse in the foreseeable future.
Annual Report 2013
85
86
Notes to the Consolidated Financial Statements
20 Fair value of financial instruments
The following tables present the carrying amounts and the fair values of financial instruments by measurement category at December 31:
Carrying amounts
EURm
Current Non-current
availableavailablefor-sale
for-sale
financial
financial
assets
assets
2013
Available-for-sale investments1
Long-term loans receivable2
Accounts receivable
Current portion of long-term loans receivable3
Derivative and other current financial assets
Fixed income and money-market investments carried
at fair value
924
Total financial assets
924
69
29
2 864
29
94
69
3 016
Financial
liabilities
measured
at
amortized
cost
30
–
708
Total financial assets
708
–
3
–
156
63
4 111
37
9
156
4 220
Long-term interest-bearing liabilities
Current portion of long-term loans payable
Short-term borrowings
Other financial liabilities
Accounts payable
–
16
–
30
29
2 864
29
163
30
28
2 864
29
163
924
924
4 038
895
86
110
1 787
895
86
110
3
1 787
1 000
86
110
3
1 787
2 878
2 881
2 986
29
63
4 111
37
165
29
60
4 111
37
165
708
708
–
5 113
5 110
821
195
134
2 352
821
195
134
16
2 352
824
195
134
16
2 352
3 502
3 518
3 521
16
–
Fair value
4 039
29
29
Total
carrying
amounts
–
3
2012
Available-for-sale investments1
Long-term loans receivable2
Accounts receivable
Current portion of long-term loans receivable3
Derivative and other current financial assets
Fixed income and money-market investments carried
at fair value
Total financial liabilities
Loans and
receivables
measured
at
amortized
cost
30
Long-term interest-bearing liabilities
Current portion of long-term loans payable
Short-term borrowings
Other financial liabilities
Accounts payable
Total financial liabilities
Financial
assets and
liabilities at
fair value
through
profit or
loss
Includes investments carried at fair value and investments in publicly quoted equity shares of EUR 28 million and EUR 2 million, respectively (EUR 24 million and
EUR 5 million in 2012).
2
Includes EUR 10 million (EUR 39 million in 2012) relating to customer financing.
3
Includes EUR 29 million (EUR 35 million in 2012) relating to customer financing.
1
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
The fair value of long-term loans receivable is measured by amortizing the future cash flows of customer loans using the current credit risk
factor (discount factor) of the borrower, whereas the carrying amount is based on the effective interest rate. The fair values of accounts
receivable and accounts payable are assumed to approximate their carrying amounts due to their short-term nature. The fair values are
estimated to be equal to the carrying amounts for short-term financial assets and financial liabilities due to the limited credit risk and short
maturity. Fixed income and money-market investments include available-for-sale investments, cash equivalents of EUR 924 million
(EUR 706 million in 2012) and available-for-sale investments, liquid assets of EUR 0 million (EUR 2 million in 2012).
The fair value of long-term interest bearing liabilities is determined with reference to quoted yield curves. Derivative and other current financial
assets include EUR 69 million derivative assets (EUR 156 million in 2012). Other financial liabilities include derivative liabilities. Short-term
borrowings includes EUR 76 million (EUR 2 million in 2012) non-interest bearing payables relating to cash held temporarily due to the
divested businesses and EUR 7 million (EUR 8 million in 2012) related to the sale of receivable arrangements in China. The payables have
been reclassified from other financial liabilities to short-term borrowings for comparability purposes for 2012 (refer to Note 28, Loans and
borrowings). The fair value of short-term borrowings is assumed to approximate the carrying amount due to its short-term nature.
For information on the valuation of items measured at fair value refer to Note 1, Accounting principles. Refer to Note 21, Derivative financial
instruments for the split of hedge accounted and non-hedge accounted derivatives.
Offsetting financial assets and financial liabilities
The following tables present financial assets and liabilities subject to offsetting under enforceable master netting agreements and similar
arrangements at December 31:
Gross amounts
of financial
assets/
(liabilities)
Gross amounts
of financial
liabilities/(assets)
set off in the
statement of
financial position
Net amounts
of financial
assets/(liabilities)
presented in the
statement of
financial position
Financial
instruments
assets/(liabilities)
Cash collateral
received/
(pledged)
Net amount
2013
Derivative assets
Derivative liabilities
69
(3)
–
–
69
(3)
3
(3)
–
–
66
–
Total
66
–
66
–
–
66
2012
Derivative assets
Derivative liabilities
156
(16)
–
–
156
(16)
15
(15)
–
–
141
(1)
Total
140
–
140
–
–
140
EURm
Related amounts not set off in the
statement of financial position
Financial statements
The financial instruments subject to enforceable master netting agreements and similar arrangements are not offset in the consolidated
statement of financial position in cases where there is no intention to settle net, or realize the asset and settle the liability simultaneously.
Annual Report 2013
87
88
Notes to the Consolidated Financial Statements
Fair value hierarchy
Financial assets and liabilities recorded at fair value are categorized based on the amount of unobservable inputs used to measure their
fair value. Three hierarchical levels are based on an increasing amount of judgment associated with the inputs used to derive fair valuation
for these assets and liabilities. At the end of each reporting period, the Group categorizes its financial assets and liabilities to an appropriate
level of the fair value hierarchy. Items included in the following tables are measured at fair value on a recurring basis.
The following tables present the valuation methods used to determine the fair values of financial instruments carried at fair value at December 31:
Instruments with
quoted prices in
active markets
(Level 1)
Valuation
technique using
observable data
(Level 2)
Valuation
technique using
non-observable data
(Level 3)
Total
924
–
–
924
2
–
–
–
18
69
–
10
–
2
28
69
926
87
10
1 023
Derivative liabilities
–
3
–
3
Total financial liabilities
–
3
–
3
708
–
–
708
5
–
–
–
14
156
–
10
–
5
24
156
EURm
2013
Fixed income and money-market investments carried
at fair value
Available-for-sale investments in publicly quoted
equity shares
Other available-for-sale investments carried at fair value
Derivative assets
Total financial assets
2012
Fixed income and money-market investments carried
at fair value
Available-for-sale investments in publicly quoted
equity shares
Other available-for-sale investments carried at fair value
Derivative assets
Total financial assets
713
170
10
893
Derivative liabilities
–
16
–
16
Total financial liabilities
–
16
–
16
Level 1 includes financial assets and liabilities that are measured in whole or significant part by reference to published quotes in an active
market. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market
transactions on an arm’s length basis. This level includes listed bonds and other securities, listed shares and exchange traded derivatives.
Level 2 includes financial assets and liabilities measured using a valuation technique based on assumptions that are supported by prices
from observable current market transactions. These include assets and liabilities for which pricing is obtained via pricing services but where
prices have not been determined in an active market, financial assets with fair values based on broker quotes, investments in private equity
funds with fair values obtained via fund managers and assets that are valued using the Group’s own valuation models in which the material
assumptions are market observable. The majority of the Group’s over-the-counter derivatives and certain other instruments not traded in
active markets fall within this level.
Level 3 valuation techniques using non-observable inputs mean that fair values are determined in whole or in part using a valuation technique
based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they
based on available market data. However, the fair value measurement objective remains the same, that is, to estimate an exit price from the
Group’s perspective. The main asset classes in this level are unlisted equity investments and unlisted funds.
There have been no transfers between Levels 1, 2 and 3 during the years presented. The fair value of financial instruments reported under
level 3 were EUR 10 million in 2013 and 2012 (EUR 9 million in 2011). There were no material movements or transactions in 2013 and 2012.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
21 Derivative financial instruments
Assets
EURm
Fair value1
Liabilities
Notional2
Fair value1
Notional2
2013
Cash flow hedges:
Forward foreign exchange contracts
Derivatives not designated in hedge accounting
relationships carried at fair value through
profit and loss:
Forward foreign exchange contracts
Currency options bought
–
308
(1)
453
64
5
2 615
332
(2)
–
1 371
–
Total
69
3 255
(3)
1 824
2012
Cash flow hedges:
Forward foreign exchange contracts
Derivatives not designated in hedge accounting
relationships carried at fair value through
profit and loss:
Forward foreign exchange contracts
Currency options bought
Currency options sold
Interest rate swaps
–
40
(2)
1 111
143
12
–
1
4 400
503
–
150
(12)
–
–
(2)
1 545
–
54
150
Total
156
5 093
(16)
2 860
In the statement of financial position, the fair value of derivative financial instruments is included in other financial assets and in other financial liabilities.
Includes the gross amount of all notional values for contracts that have not yet been settled or cancelled. The amount of notional value outstanding is not necessarily
a measure or indication of market risk as the exposure of certain contracts may be offset by that of other contracts.
1
2
Financial statements
Annual Report 2013
89
90
Notes to the Consolidated Financial Statements
22 Inventories
EURm
2013
2012
Raw materials and supplies
Work in progress
Finished goods
Advances to suppliers
143
136
512
1
200
217
564
3
Total
792
984
The cost of inventories recognized as an expense during the year and included in cost of sales is EUR 2 875 million (EUR 3 868 million in 2012
and EUR 4 266 million in 2011).
Movements in allowances for excess and obsolete inventory:
EURm
2013
2012
2011
At January 1
Charged to income statement
Deductions
238
39
(102)
223
142
(127)
225
105
(107)
At December 31
175
238
223
Deductions include utilization and releases of allowances. In 2012, deductions also included a reclassification to assets of disposal groups
classified as held for sale of EUR 39 million (EUR 2 million in 2011). Refer to Note 31, Non-current assets and disposal groups classified as held
for sale.
23 Allowances for doubtful accounts
Movements in allowances for doubtful accounts:
EURm
2013
2012
2011
At January 1
Charged to income statement
Deductions
120
38
(44)
110
46
(36)
159
43
(92)
At December 31
114
120
110
Deductions include utilization and releases of allowances. In 2011, deductions also included reclassifications to assets of disposal groups
classified as held for sale of EUR 2 million. Refer to Note 31, Non-current assets and disposal groups classified as held for sale.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
24 Prepaid expenses and accrued income
EURm
2013
2012
VAT1
Other taxes2
Deposits
Other
175
108
41
174
229
110
45
217
Total3
498
601
Certain VAT balances have been reclassified from other taxes to VAT in 2013 and reclassified for comparability purposes in 2012. There is no change in total prepaid
expenses and accrued income as a result of the reclassification.
Current income tax assets are shown in a separate line in the consolidated statement of financial position in 2013, and have been reclassified from prepaid expenses and
accrued income, other taxes for comparability purposes in 2012. The change in 2012 in prepaid expenses and accrued income as a result of the reclassification is a
decrease of EUR 237 million.
3
EUR 41 million of prepaid pension costs for 2012 have been restated to EUR 28 million as a result of the retrospective application of IAS 19R, Employee benefits (refer
to Note 8, Pensions). These prepaid pension costs have also been reclassified to non-current assets, resulting in an overall decrease of EUR 41 million in 2012 prepaid
expenses and accrued income.
1
2
Other prepaid expenses and accrued income include various amounts which are individually insignificant.
25 Issued share capital and share premium
EURm
2012
2011
Share capital
Share premium
Additional parent contribution
0
9 726
27
0
9 726
18
0
9 726
18
Total
9 753
9 744
9 744
Issued capital comprises:
800 294 fully paid shares
100 073 fully paid ordinary shares
500 fully paid cumulative preference shares
Additional parent contribution
9 726
–
–
27
–
7 194
2 532
18
–
7 194
2 532
18
Total
9 753
9 744
9 744
2013
2012
2011
400 147
–
–
–
400 092
50
–
400 092
50
–
5
5
400 147
400 147
400 147
Financial statements
2013
Share capital
EUR
Authorized and issued share capital comprises:
800 294 fully paid ordinary shares of EUR 0.50 each
100 023 fully paid ordinary shares A, B, C of EUR 4.00 each
50 fully paid ordinary shares D of EUR 1.00 each
500 fully paid cumulative preference shares CPA, CPB, CPC, CPD of
EUR 0.01 each
Total
As a result of the change in the Group’s ownership in 2013 (refer to Note 1, Accounting principles), all of the class A, B, C and D ordinary
shares and class CPA, CPB, CPC and CPD cumulative preference shares were converted into a single class of ordinary shares. Each
new share confers the right to cast one vote at the General Meeting.
Annual Report 2013
91
92
Notes to the Consolidated Financial Statements
Legal reserve
At December 31, 2013, Nokia Solutions and Networks B.V. has a legal reserve of EUR 97 million (EUR 66 million in 2012 and EUR 68 million in
2011) that is not available for distribution to its shareholders. The legal reserve consists of the portion of the cumulative share in the income of
group companies of Nokia Solutions and Networks B.V. which is restricted from distribution due to Dutch regulatory requirements. The legal
reserves are included in the accumulated deficit in the consolidated statement of financial position.
26 Currency translation differences
EURm
Gross
Tax
Net
93
45
(7)
5
–
–
98
45
(7)
131
5
136
(2)
(1)
–
–
(2)
(1)
At December 31, 2012
128
5
133
Exchange differences on translating foreign operations
Attributable to non-controlling interests
(157)
2
–
–
(157)
2
(27)
5
(22)
At January 1, 2011
Exchange differences on translating foreign operations
Attributable to non-controlling interests
At December 31, 2011
Exchange differences on translating foreign operations
Attributable to non-controlling interests
At December 31, 2013
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
27 Fair value and other reserves
Pension
remeasurements1
EURm
At January 1, 2011
Pension remeasurements:
Remeasurements of defined benefit
plans
Cash flow hedges:
Net fair value (losses)/gains
Transfer of losses to income statement
as adjustment to net sales2
Transfer of losses to income statement
as adjustment to cost of sales2
Transfer of losses/(gains) as a basis
adjustment to assets and liabilities3
Available-for-sale investments:
Net fair value losses
At December 31, 2011
Pension remeasurements:
Remeasurements of defined benefit
plans
Cash flow hedges:
Net fair value gains
Transfer of losses to income statement
as adjustment to net sales2
Transfer of gains to income statement as
adjustment to cost of sales2
At December 31, 2012
At December 31, 2013
Gross
Tax
Net
Gross
Tax
33
(12)
21
(35)
(3)
(50)
15
(35)
–
–
–
–
–
–
–
Net
Total
Gross
Tax
Net
(38)
–
–
–
–
–
–
–
(24)
6
(18)
–
–
4
–
4
–
–
24
–
–
–
–
13
–
–
–
(17)
3
(165)
Gross
Tax
Net
(2)
(15)
(17)
–
(50)
15
(35)
–
–
(24)
6
(18)
–
–
–
4
–
4
24
–
–
–
24
–
24
(3)
10
–
–
–
13
(3)
10
–
–
–
(1)
–
(1)
(1)
–
(1)
(14)
(18)
–
(18)
(1)
–
(1)
(36)
3
(33)
8
(157)
–
–
–
–
–
–
(165)
8
(157)
–
–
–
30
–
30
–
–
–
30
–
30
–
–
–
157
–
157
–
–
–
157
–
157
–
–
–
(93)
–
(93)
–
–
–
(93)
–
(93)
(182)
11
(171)
76
–
76
(1)
–
(1)
(107)
11
(96)
107
(7)
100
–
–
–
–
–
–
107
(7)
100
–
–
–
126
–
126
–
–
–
126
–
126
–
–
–
(130)
–
(130)
–
–
–
(130)
–
(130)
–
–
–
(23)
–
(23)
–
–
–
(23)
–
(23)
–
–
–
–
–
–
(2)
1
(1)
(2)
1
(1)
(75)
4
(71)
49
–
49
(3)
1
(2)
(29)
5
(24)
Financial statements
Pension remeasurements:
Remeasurements of defined benefit
plans
Cash flow hedges:
Net fair value gains
Transfer of gains to income statement as
adjustment to net sales2
Transfer of gains to income statement as
adjustment to cost of sales2
Available-for-sale investments:
Net fair value (losses)/gains
Available-for-sale
investments
Hedging reserve
The Group’s financial statements for the years ended December 31, 2012 and December 31, 2011 reflect the retrospective application of IAS 19R, Employee Benefits
(refer to Note 8, Pensions).
Deferred tax for the Group’s foreign subsidiaries was not recognized at December 31, 2013, 2012 and 2011 due to valuation adjustments.
3
Included in the initial acquisition consideration for the Motorola Solutions’ networks business. Refer to Note 12, Acquisitions and disposals.
1
2
The Group has defined benefit plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions
for these defined benefit plans are charged or credited to the Pension remeasurements reserve (refer to Note 1, Accounting principles and
Note 8, Pensions).
The Group applies hedge accounting on certain forward foreign exchange contracts that are designated as cash flow hedges. The change
in fair value that reflects the change in spot exchange rates is deferred to the Hedging reserve to the extent that the hedge is effective
(refer to Note 1, Accounting principles).
Annual Report 2013
93
94
Notes to the Consolidated Financial Statements
28 Loans and borrowings
EURm
Final maturity
2013
2012
Bond 2018 (EUR 450 million 6.75%)
Bond 2020 (EUR 350 million 7.125%)
European Investment Bank
Nordic Investment Bank
Finnish pension loan
Firstrand Bank Limited
Forward Starting Credit Facility term loan: prepaid March 2013
Differences between Bond nominal and carrying values
Other
April 2018
April 2020
January 2015
March 2015
October 2015
March 2015
450
350
25
4
44
35
–
(18)
5
–
–
50
35
88
44
600
–
4
895
821
European Investment Bank
Nordic Investment Bank
Finnish pension loan
Other
25
16
44
1
100
45
44
6
Current portion of long-term interest-bearing liabilities
86
195
Commercial Paper Program
Borrowings on committed and uncommitted basis
Other1
25
2
83
82
3
49
110
134
1 091
1 150
Long-term interest-bearing liabilities
Short-term borrowings
Total loans and borrowings
2
Includes EUR 76 million (EUR 2 million in 2012) non-interest bearing payables relating to cash held temporarily due to the divested businesses where the Group continues
to perform services within a contractually defined scope for a specified timeframe. Also includes EUR 7 million (EUR 8 million in 2012) related to the sale of receivable
arrangements in China. The payables are included in short-term borrowings in the statement of financial position at December 31, 2013 and EUR 10 million has been
reclassified from other financial liabilities to short-term borrowings for comparability purposes in 2012.
2
Interest expense amounted to EUR 96 million (EUR 113 million in 2012).
1
In March 2013, the Group issued EUR 450 million of 6.75% Senior Notes due April 2018 and EUR 350 million of 7.125% Senior Notes due
April 2020, both at an issue price of 100%. The Notes are listed on the Luxembourg Stock Exchange. The net proceeds of EUR 779 million
from the bond issuance were used to prepay the EUR 600 million term loan under the EUR 1 350 million forward starting credit facility and
EUR 50 million of the European Investment Bank loan in March 2013 and the remaining proceeds are to be used for general corporate
purposes. The notes include covenants restricting, among other things, the Group’s ability to incur or guarantee additional debt, pay
dividends, buy back equity and make investments in non-controlling interests, create or incur certain liens and engage in merger,
consolidation or asset sales. These covenants, which are customary in the issuance of high yield bonds, are subject to a number
of qualifications and exceptions.
At December 31, 2013 a revolving credit facility of EUR 750 million remains undrawn under the forward starting credit facility.
Nokia Solutions and Networks B.V. acts as the Guarantor for the Finnish pension loan guarantee facility and the EUR 500 million commercial
paper program in Finland. Nokia Solutions and Networks B.V. and Nokia Solutions and Networks Oy act as the Guarantors for the Senior
Notes, the forward starting credit facility, the European Investment Bank and the Nordic Investment Bank loans. The European Investment
Bank and the Nordic Investment Bank loans, the Finnish pension loan guarantee and the forward starting credit facility include financial
covenants relating to financial leverage and interest coverage of the Group. The Group’s credit facilities are also subject to cross default
provisions. All financial covenants and cross default provisions were satisfied at December 31, 2013.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
29 Provisions
EURm
Restructuring
Project
losses
Warranty and
retrofit
Other
Total
At January 1, 2012
Additional provisions
Changes in estimates
86
977
(48)
93
248
(65)
94
49
(28)
193
63
(26)
466
1 337
(167)
Charged to income statement
Reclassification1
Utilized during year
Translation differences
929
–
(447)
–
183
(4)
(128)
–
21
(2)
(41)
–
37
17
(57)
(7)
1 170
11
(673)
(7)
At December 31, 2012
568
144
72
183
967
Additional provisions
Changes in estimates
266
(64)
171
(57)
65
(13)
107
(9)
609
(143)
Charged to income statement
Reclassification1
Utilized during year
Translation differences
202
23
(354)
(2)
114
–
(106)
–
52
–
(29)
(2)
98
–
(48)
(10)
466
23
(537)
(14)
At December 31, 2013
437
152
93
223
905
In 2013, the reclassification of restructuring provisions consists of a reclassification to accrued expenses of EUR 2 million and a reclassification from accrued expenses
of EUR 25 million. The EUR 25 million reclassification is for a provision for the settlement of remaining claims with Adtran Inc., related to assets and liabilities transferred
in connection with the sale of the fixed line broadband access business (refer to Note 12, Acquisitions and disposals). In 2012, the reclassification of other provisions
consists of EUR 26 million from accrued expenses for contractual commitments with vendors, and EUR 9 million to accounts payable due to a settlement agreement.
All other reclassifications relate to divestments (refer to Note 31, Non-current assets and disposal groups classified as held for sale).
1
The restructuring provision includes personnel and other restructuring related costs, such as real estate exit costs. The majority of outflows
of restructuring provisions are expected to occur over the next two years.
Provisions for project losses relate to onerous contracts. The Group’s policy for providing for onerous contracts is disclosed in Note 1,
Accounting principles. Utilization of provisions for project losses is generally expected to occur over the next 12 months.
Financial statements
Warranty provisions relate to products sold. The Group’s policy for estimating warranty provisions is disclosed in Note 1, Accounting
principles. Outflows of warranty provisions are generally expected to occur within the next 18 months.
Other provisions include various contractual obligations and litigations. Outflows for other provisions are generally expected to occur over
the next two years. Provisions for project losses and other provisions include amounts recorded for claims related to the exit from various
customer contracts in line with the Group’s strategic focus or due to challenging political or business environments. Such provisions are
estimates based on the information currently available and are subject to change as negotiations with customers, trade sanctions
environment, or other related circumstances evolve.
Uncertain income tax positions regarding current tax, previously included in ‘Other provisions’, are included in current income tax liabilities
in the statement of financial position in 2013 and have been reclassified for comparability purposes in 2012. The reduction in total provisions
as a result of the reclassification is EUR 52 million in 2012.
Annual Report 2013
95
96
Notes to the Consolidated Financial Statements
30 Accrued expenses
EURm
2013
2012
Advance payments and deferred revenue
Salaries and wages
Expenses related to customer projects
Social security
Billings in excess of costs incurred1
VAT2
Other taxes3
Other
875
649
234
117
99
95
68
287
1 080
746
370
151
216
123
82
318
2 424
3 086
Total
Refer to Note 4, Revenue recognition.
Certain VAT balances have been reclassified from other taxes to VAT in 2013 and reclassified for comparability purposes in 2012. There is no change in total accrued
expenses as a result of the reclassification.
3
Current income tax liabilities are shown in a separate line in the consolidated statement of financial position in 2013, and have been reclassified from accrued expenses for
comparability purposes in 2012. The change in 2012 in accrued expenses as a result of the reclassification is a decrease of EUR 98 million.
1
2
Other accrued expenses include various amounts which are individually insignificant.
31 Non-current assets and disposal groups classified as held for sale
On December 1, 2012 the Group entered into an agreement to sell its Optical Networks business to Marlin Equity Partners. The transaction
involved the complete Optical Networks product portfolio, services offering and existing customer contracts. The Group concluded the sale
on May 6, 2013. For full details of the disposal, refer to Note 12, Acquisitions and disposals. On December 5, 2012 the Group signed an
agreement to sell its Business Support Systems (‘BSS’) business, including the billing and charging software products and solutions and
related services, to Redknee Solutions Inc. The transaction was completed on March 29, 2013. These divestments further enhance the
Group’s strategic focus on the mobile broadband business.
The assets and liabilities included in the disposal groups classified as held for sale at December 31, 2012 were as follows:
EURm
2012
Non-current assets
Property, plant and equipment
9
Current assets
Inventories
Accounts receivable, net of allowances for doubtful accounts
Prepaid expenses and accrued income
91
39
4
Assets of disposal groups classified as held for sale
143
Current liabilities
Accrued expenses
Provisions
84
6
Liabilities of disposal groups classified as held for sale
90
The result of discontinued operations, involving the Optical Networks business, and the result recognized on the re-measurement of the
disposal group to fair value less costs of disposal are disclosed in Note 12, Acquisitions and disposals.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
32 Notes to the consolidated statement of cash flows
EURm
2013
2012
2011
Other adjustments for:
Scrapping/write-off of property, plant and equipment/intangible assets
Share of results of associates
Impairment charges (Note 13)
Share-based payment expense/(income) (Note 6)
Post-employment benefits1
Other (income)/expenses
14
(8)
8
30
40
(12)
9
(8)
37
11
36
(1)
7
17
19
(2)
40
2
Other adjustments, total
72
84
83
The Group’s financial statements for the years ended December 31, 2012 and December 31, 2011 reflect the retrospective application of IAS 19R, Employee Benefits (refer
to Note 8, Pensions).
1
The cash outflows for restructuring and other specific items, excluding impairments and PPA related charges, are EUR 609 million
(EUR 645 million in 2012 and EUR 188 million in 2011).
33 Commitments and contingencies
EURm
Contingent liabilities on behalf of Group companies
Other guarantees
Contingent liabilities on behalf of other companies
Other guarantees
Financing commitments
Customer finance commitments1
Venture fund commitments¹
Collateral for the Group’s commitments
Assets pledged
2013
2012
723
864
55
11
25
9
34
9
2
2
Financial statements
Refer to Note 35, Financial and capital risk management.
1
The amounts above represent the maximum principal amount of commitments and contingencies.
At December 31, 2013 other guarantees on behalf of Group companies include commercial guarantees of EUR 463 million (EUR 598 million in
2012) provided to certain customers of the Group in the form of bank guarantees or corporate guarantees issued by some of the Group’s entities.
These instruments entitle the customer to claim payment as compensation for non-performance by the Group of its obligations under network
infrastructure supply agreements. Depending on the nature of the guarantee, compensation is payable on demand or is subject to verification
of non-performance. The volume of other guarantees has decreased by EUR 141 million mainly due to expired guarantees.
Other guarantees on behalf of other companies represent commercial guarantees issued on behalf of third parties. The increase in volume
is mainly due to the transfer of guarantees in connection with the disposal of certain businesses where contractual risks and revenues have
been transferred, but some of the commercial guarantees have not yet been re-assigned legally.
Financing commitments are available under loan facilities negotiated mainly with the Group’s customers. Availability of the amounts is
dependent upon the borrower’s continuing compliance with stated financial and operational covenants and compliance with other
administrative terms of the facility. The loan facilities are primarily available to fund capital expenditure relating to purchases of network
infrastructure equipment and services.
Venture fund commitments are financing commitments to a fund making initial capital investments in start-up companies. As a limited partner
in the fund, the Group is committed to make capital contributions and is entitled to cash distributions according to the respective partnership
agreements.
The Group is party to routine litigation incidental to the normal conduct of business. Based on the information currently available, in the
opinion of management, the outcome of such litigation is not likely to be material to the financial condition or result of operations of the Group.
At December 31, 2013 the Group has purchase commitments of EUR 756 million (EUR 799 million in 2012) relating to commitments from
service agreements, outsourcing arrangements and inventory purchase obligations, primarily for purchases in 2014 through 2015.
Annual Report 2013
97
98
Notes to the Consolidated Financial Statements
34 Leasing contracts
The Group leases office, manufacturing and warehouse space under various non-cancellable operating leases. Certain contracts contain
renewal options for various periods of time.
The following table presents future costs for non-cancellable operating lease contracts at December 31, 2013:
EURm
Operating leases
Within one year
After one year but not more than five years
More than five years
112
179
107
Total
398
Rental expenses amount to EUR 211 million (EUR 309 million in 2012 and EUR 261 million in 2011), including restructuring charges of
EUR 23 million (EUR 59 million in 2012 and EUR 2 million in 2011).
35 Financial and capital risk management
The Group manages risk in a systematic way across business operations and processes. Material risks and opportunities are identified,
analyzed, managed and monitored as part of business performance management. Relevant key risks are identified against business targets
either in business operations or as an integral part of long and short-term planning. The Group’s overall risk management concept is based
on managing the key risks that would prevent the Group from meeting its business objectives, rather than solely focusing on eliminating risks.
The Group’s Treasury function focuses on financial risks.
The objective for Treasury activities is to guarantee sufficient funding at all times and to identify, evaluate and manage financial risks. Treasury
activities support this aim by mitigating the adverse effects on the profitability of the underlying business caused by fluctuations in the financial
markets, and by managing the capital structure of the Group by balancing the levels of liquid assets and financial borrowings.
Treasury activities are governed by policies approved by the Board of Directors. Treasury policy provides principles for overall financial risk
management and determines the allocation of responsibilities for financial risk management in the Group. Operating procedures cover
specific areas such as foreign exchange risk, interest rate risk, use of derivative financial instruments, as well as liquidity and credit risk.
The Group is risk averse in its treasury activities.
(a) Market risk
Foreign exchange risk
The objective of foreign exchange (‘FX’) risk management activities is to support the Group in protecting shareholder value by minimizing
the effects of uncertainty in the international foreign exchange markets. The main principle is that all major foreign exchange exposures are
identified, analyzed and hedged by the Group’s treasury function. Specifically:
–Statement of financial position risks from foreign exchange positions in currencies other than the functional currency of the respective
Group entity are identified and hedged on an ongoing basis.
–Cash flow risks arising from highly probable forecasted sales and purchases are identified on a monthly basis and hedged for a period
of up to approximately 12 months. These forecasted sales and purchases are typically realized within an equivalent period.
–Other forecasted cash flow risks are managed selectively and the related hedges are carried at fair value through profit and loss.
The Group has some exposure due to unhedged risks which consists of exposures in currencies that either cannot be hedged efficiently or
which are considered immaterial. In 2013, these currencies represent approximately 2% of the Group’s net sales (approximately 2% of net
sales in 2012). Exposures are mainly hedged with derivative financial instruments such as forward foreign exchange contracts and foreign
exchange options. The majority of financial instruments hedging foreign exchange risk has a duration of less than a year. The Group does not
hedge forecasted foreign currency cash flows beyond two years.
Since the Group has entities where the functional currency is other than euro, the shareholders’ equity is exposed to fluctuations in exchange
rates. Equity changes caused by movements in foreign exchange rates are shown as a currency translation difference in the Group’s
consolidated financial statements. The Group may use, from time to time, foreign exchange contracts and foreign currency denominated
loans to hedge its equity exposure arising from foreign net investments.
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
The Group has entities in Venezuela, Belarus and Iran where the functional currency is the currency of a hyperinflationary economy.
The Group assessed the entities’ financial statements in accordance with IAS 29, Financial Reporting in Hyperinflationary Economies.
The impact is not material in 2013, 2012 or 2011. Trading in hyperinflationary economies carries a risk of future devaluation of monetary
assets and liabilities. This risk cannot be hedged. The Group recognized a foreign exchange loss of EUR 15 million due to foreign exchange
fluctuations in the Iranian rial in 2013 (EUR 109 million 2012).
The following tables present the currencies that represent a significant portion of the currency mix in outstanding financial instruments
at December 31:
2013
EURm
FX derivatives used as cash flow hedges (absolute net amount)1
FX exposure from statement of financial position items (absolute net amount)2
FX derivatives not designated in a hedge relationship and carried at fair value through
profit and loss (absolute net amount)2
2012
EURm
FX derivatives used as cash flow hedges (absolute net amount)
FX exposure from statement of financial position items (absolute net amount)2
FX derivatives not designated in a hedge relationship and carried at fair value through
profit and loss (absolute net amount)2
1
USD
JPY
KRW
AUD
Other
409
820
232
50
–
122
72
6
47
885
1 037
127
146
46
422
USD
JPY
CNY
INR
Other
479
1 030
462
128
–
178
–
133
142
817
1 155
185
171
68
618
Foreign exchange derivatives are used to hedge the foreign exchange risk from forecasted highly probable cash flows related to sales and purchases. In some of the
currencies, especially U.S. dollar (USD) and Japanese yen (JPY), the Group has substantial foreign exchange risks in both estimated cash inflows and outflows, which have
been netted in the table for 2012. Refer to Note 27, Fair value and other reserves for more details on hedge accounting. The underlying exposures for which these hedges are entered into are not presented in the tables above as they are not financial instruments as defined under IFRS 7, Financial Instruments: Disclosures.
2
The statement of financial position items and some probable forecasted cash flows which are denominated in foreign currencies are hedged by a portion of foreign
exchange derivatives not designated in a hedge relationship and carried at fair value through profit and loss. The Group has hedged these exposures with a combination
of foreign exchange forwards and foreign exchange options.
1
Financial statements
Interest rate risk
The Group is exposed to interest rate risk either through market value fluctuations of statement of financial position items or through changes
in interest income or expenses. Interest rate risk mainly arises through interest-bearing assets and liabilities. Estimated future changes in cash
flows and statement of financial position structure also expose the Group to interest rate risk.
The objective of interest rate risk management is to support the Group in protecting its shareholder value by optimizing the balance between
minimizing uncertainties caused by fluctuations in interest rates and minimizing the consolidated net interest expense.
The interest rate exposure of the Group is monitored and managed centrally by the Group’s Treasury function.
The following table presents the interest rate profile of the Group’s interest-bearing assets and liabilities at December 31:
2013
EURm
2012
Fixed rate
Floating rate
Fixed rate
Floating rate
Assets1
Liabilities2
476
(879)
2 353
(128)
405
(293)
2 121
(812)
Assets and liabilities before derivatives
Interest rate derivatives
(403)
–
2 225
–
112
(1)
1 309
–
Total assets and liabilities after derivatives
(403)
2 225
111
1 309
The increase in floating rate assets is primarily due to an increase in cash and cash equivalents. In 2013 and 2012, fixed rate assets mainly include available-for-sale
investments, cash equivalents, long-term loans receivable and short-term loans.
The decrease in floating rate liabilities and the increase in fixed rate liabilities is mainly due to an issuance of Senior Notes. Refer to Note 28, Loans and borrowings.
1
2
Annual Report 2013
99
Notes to the Consolidated Financial Statements
Value-at-Risk
The Group uses the Value-at-Risk (‘VaR’) methodology to assess the Group’s exposures to foreign exchange and interest rate risks.
The VaR based methodology provides estimates of potential fair value losses in market risk sensitive instruments as a result of adverse
changes in specified market factors, at a specified confidence level over a defined holding period. For the Group, the foreign exchange VaR
is calculated using the Monte Carlo method which simulates random values for exchange rates in which the Group has exposures and it
takes the nonlinear price function of certain foreign exchange derivative instruments into account. The variance-covariance methodology
is used to assess and measure the interest rate risk.
The VaR is determined using volatilities and correlations of rates and prices estimated from a one-year sample of historical market data, at a
95% confidence level, using a one-month holding period. To put more weight on recent market conditions, an exponentially weighted moving
average is performed on the data with an appropriate decay factor. This model implies that within a one-month holding period, the potential
loss will not exceed the VaR estimate in 95% of possible outcomes. In the remaining 5% of possible outcomes, the potential loss will be at
minimum equal to the VaR figure and on average, substantially higher.
The VaR methodology relies on a number of assumptions such as: (1) risks are measured under average market conditions, assuming the
market risk factors follow normal distributions; (2) future movements in market risk factors follow estimated historical movements; and
(3) the assessed exposures do not change during the holding period. Thus, it is possible that for any given month, the potential losses
at 95% confidence level are different and could be substantially higher than the estimated VaR.
Foreign exchange Value-at-Risk
The VaR figures for the Group’s financial instruments which are sensitive to foreign exchange fluctuations are presented in the table below.
As defined in IFRS 7, Financial Instruments: Disclosures, the financial instruments included in the VaR calculations are: (1) foreign exchange
exposures from outstanding statement of financial position items and other foreign exchange derivatives carried at fair value through profit
and loss which are not in a hedge relationship and are mostly used for hedging statement of financial position items; and (2) foreign exchange
derivatives designated as forecasted cash flow hedges. Most of the VaR is caused by these derivatives as forecasted cash flow exposures
are not financial instruments as defined in IFRS 7 and thus not included in the VaR calculation.
Foreign exchange Value-at-Risk:
EURm
At December 31
Average for the year
Range for the year
2013
2012
18
43
18-95
42
46
27-60
Interest rate Value-at-Risk
Interest rate VaR is calculated using the variance-covariance method to assess and measure interest rate risk. The VaR figures for the
Group’s interest rate exposure in the debt portfolio are presented in the table below. Sensitivities to credit spreads are not reflected in the
figures below.
Interest rate Value-at-Risk:
EURm
2013
2012
At December 31
Average for the year
Range for the year
3
6
0-16
–
–
0-1
100
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
(b) Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Credit risk
arises from bank and cash, fixed income and money-market investments, derivative financial instruments, loans receivable and credit
exposures to customers, including outstanding receivables, financial guarantees and committed transactions. Credit risk is managed
separately for business related exposure and financial credit exposure.
Except for loan commitments given but not used of EUR 25 million (EUR 34 million in 2012), the maximum exposure to credit risk is limited
to the book value of the financial assets included in the Group’s consolidated statement of financial position.
Business related credit risk
The Group aims to ensure the highest possible quality in accounts receivable and loans due from customers. The credit policy sets out
the framework for the management of the business related credit risks in all Group companies and affiliates.
Credit exposure is measured as the total of accounts receivable and loans due from customers and committed credits. At December 31,
2013 accounts receivable, excluding allowances for doubtful accounts, are EUR 2 978 million. At December 31, 2012 accounts receivable,
excluding allowances for doubtful accounts as well as amounts expected to be uncollectible for acquired receivables, amounted to
EUR 4 231 million. Loans receivable are EUR 39 million (EUR 74 million in 2012).
The credit policy requires credit decisions to be based on credit evaluation including credit rating for larger exposures. The Group’s rating
policy defines the rating principles, and ratings are approved by the rating committee. Credit risks are approved and monitored according
to the credit policy. Concentrations of customer or country risks are monitored at Group level. When appropriate, assumed credit risks are
mitigated with the use of approved instruments, such as sale of receivables, letters of credit and collateral or insurance.
Accounts receivable do not include any major concentrations of credit risk by customer. The top three customers account for approximately
3.9%, 3.5% and 3.2% (9.1%, 4.3% and 2.4% in 2012) of the Group accounts receivable and loans receivable. The top three credit exposures
by country amount to 20.2%, 6.0% and 5.5% (11.7%, 11.0% and 7.0% in 2012). The 20.2% credit exposure relates to accounts receivable in
China. The Group considers the political, economic and regulatory environment with respect to such concentrations when assessing and
managing credit risk.
The Group has provided allowances for doubtful accounts as needed on accounts receivable and loans receivable based on an analysis
of its customers’ credit rating and credit history. The Group establishes an allowance for doubtful accounts that represents an estimate of
expected losses at the end of the period. All receivables and loans receivable are considered on an individual basis to determine the
allowance for doubtful accounts.
Financial statements
The overall portfolio of the customer accounts receivable includes trade receivables of EUR 2 150 million (EUR 2 947 million in 2012) and
accrued receivables of EUR 714 million (EUR 1 164 million in 2012).
The Group concluded that the carrying amount of trade receivables that does not create any additional credit risk exposure amounts to
EUR 1 201 million (EUR 1 562 million in 2012), as all the contractual cash flows are expected to be recoverable. Of these receivables, the
aggregate value of receivables performing in accordance with the contractual payment terms is EUR 1 127 million (EUR 1 463 million in
2012), while the aggregate value of past due receivables is EUR 74 million (EUR 100 million in 2012). The aging of these past due receivables
is as follows:
EURm
2013
2012
Past due 1-30 days
Past due 31-180 days
More than 180 days
30
32
12
45
32
23
Total
74
100
At December 31, 2013 the gross carrying amount of accounts receivable, related to customer balances for which valuation allowances have
been recognized, is EUR 1 063 million (EUR 1 505 million in 2012). The valuation allowances for these accounts receivable are EUR 114 million
(EUR 120 million in 2012) and the amounts expected to be uncollectible for acquired receivables are EUR 11 million (EUR 16 million in 2012).
Refer to Note 12, Acquisitions and disposals and Note 23, Allowances for doubtful accounts.
At December 31, 2013 and 2012 there are no valuation allowances recognized for customer loans, there are no past due customer loans,
and all accounts receivable under sale of receivables transactions have qualified for asset derecognition.
Annual Report 2013
101
Notes to the Consolidated Financial Statements
Financial credit risk
Financial instruments contain an element of risk of loss resulting from counterparties being unable to meet their obligations. This risk
is monitored and managed centrally. The Group minimizes financial credit risk by limiting its counterparties to a sufficient number
of major banks and financial institutions.
In addition, the Group also monitors the total potential financial losses, should its counterparties be unable to fulfill their obligations
on the open derivative contracts the Group has maintained with them on an ongoing basis.
The following tables present the breakdown of the outstanding fixed income and money market investments by sector and credit rating
grades ranked as per Moody’s rating categories at December 31:
EURm
2013
Banks
Rating1
Aaa
Aa1-Aa3
A1-A3
Baa1-Baa3
Non rated
Total
2012
Banks
Total
Aaa
Aa1-Aa3
A1-A3
Baa1-Baa3
Non rated
Due within
3 months
Due
between
3 and 12
months
419
–
379
105
21
419
–
379
105
21
–
–
–
–
–
924
924
–
300
–
250
156
2
300
–
250
156
–
–
–
–
–
2
708
706
2
Total2,3
Bank parent company ratings are used here for bank groups. In some emerging markets, bank subsidiary ratings may differ from parent company rating.
Within the above Banks sector, fixed income and money-market investments include term deposits and investments in liquidity funds.
Included within fixed income and money-market investments at December 31, 2012 was EUR 2 million of restricted investments, which were restricted financial assets
under various contractual or legal obligations.
1
2
3
Of the Group’s cash in bank accounts, 95.7% is held with banks of investment grade credit rating (95.3% for 2012).
102
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
(c) Liquidity risk
Liquidity risk is defined as financial distress or extraordinary high financing costs arising due to a shortage of liquid funds in a situation where
business conditions unexpectedly deteriorate and require financing. Transactional liquidity risk is defined as the risk of executing a financial
transaction below fair market value, or not being able to execute the transaction at all within a specific period of time.
The objective of liquidity risk management is to maintain sufficient liquidity and to ensure that it is available fast enough without endangering
its value, in order to avoid uncertainty related to financial distress at all times. The Group ensures sufficient liquidity at all times by efficient cash
management and by keeping sufficient committed and uncommitted credit lines available.
For details of the Group’s loans and borrowings, refer to Note 28, Loans and borrowings.
The following tables present an undiscounted cash flow analysis for both financial assets and financial liabilities that are presented on the
consolidated statement of financial position and ‘off-balance sheet’ instruments such as loan commitments according to their remaining
contractual maturity at December 31:
EURm
2013
Non-current financial assets
Long-term loans receivable
Other non-current assets
Total
Due within
3 months
Due
between
3 and 12
months
Due
between
1 and 3
years
Due
between
3 and 5
years
Due
beyond
5 years
33
–
–
–
–
–
28
–
5
–
–
–
30
94
926
1 845
4
94
926
1 845
26
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3 255
(3 193)
2 150
2 576
(2 541)
1 586
679
(652)
564
–
–
–
–
–
–
–
–
–
Non-current financial liabilities
Long-term liabilities
(1 219)
(1)
(57)
(283)
(515)
(363)
(91)
(110)
(7)
(110)
(84)
–
–
–
–
–
–
–
–
–
–
–
–
–
1 824
(1 826)
–
(1 787)
1 678
(1 681)
–
(1 649)
146
(145)
–
(138)
–
–
–
–
–
–
–
–
–
–
–
–
(25)
(7)
(13)
(5)
–
–
734
(3)
(8)
745
–
–
Current financial liabilities
Current portion of long-term loans
Short-term liabilities
Cash flows related to derivative financial liabilities net settled:
Derivative contracts – payments
Cash flows related to derivative financial liabilities gross settled:
Derivative contracts – receipts
Derivative contracts – payments
Other financial liabilities4
Accounts payable3
Contingent financial assets and liabilities
Loan commitments given undrawn5
Financial guarantee given uncalled
Loan commitments obtained undrawn6
Annual Report 2013
Financial statements
Current financial assets
Current portion of long-term loans receivable
Short-term loans receivable1
Available-for-sale investments
Cash
Cash flows related to derivative financial assets net settled:
Derivative contracts – receipts
Cash flows related to derivative financial assets gross settled:
Derivative contracts – receipts
Derivative contracts – payments
Accounts receivable2, 3
103
Notes to the Consolidated Financial Statements
EURm
2012
Non-current financial assets
Long-term loans receivable
Other non-current assets
Current financial assets
Current portion of long-term loans receivable
Short-term loans receivable1
Available-for-sale investments
Cash
Cash flows related to derivative financial assets net settled:
Derivative contracts – receipts
Cash flows related to derivative financial assets gross settled:
Derivative contracts – receipts
Derivative contracts – payments
Accounts receivable2, 3
Non-current financial liabilities
Long-term liabilities
Current financial liabilities
Current portion of long-term loans
Short-term liabilities
Cash flows related to derivative financial liabilities net settled:
Derivative contracts – payments
Cash flows related to derivative financial liabilities gross settled:
Derivative contracts – receipts
Derivative contracts – payments
Other financial liabilities4
Accounts payable3
Contingent financial assets and liabilities
Loan commitments given undrawn5
Financial guarantee given uncalled
Loan commitments obtained undrawn6
Total
Due within
3 months
Due
between
3 and 12
months
Due
between
1 and 3
years
Due
between
3 and 5
years
Due
beyond
5 years
69
1
–
–
–
–
39
1
30
–
–
–
39
8
710
1 711
12
8
708
1 711
27
–
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4 943
(4 802)
2 948
3 066
(3 005)
2 334
1 877
(1 797)
614
–
–
–
–
–
–
–
–
–
(901)
(8)
(55)
(838)
–
–
(208)
(135)
(83)
(80)
(125)
(55)
–
–
–
–
–
–
(2)
(2)
–
–
–
–
2 709
(2 724)
–
(2 352)
2 318
(2 330)
–
(2 213)
278
(280)
–
(139)
113
(114)
–
–
–
–
–
–
–
–
–
–
(34)
(28)
(6)
–
–
–
821
97
(9)
733
–
–
Short-term loans receivable are included in other financial assets.
Accounts receivable maturity analysis does not include accrued receivables EUR 714 million (EUR 1 164 million in 2012).
3
The fair values of accounts receivable and accounts payable are assumed to approximate their carrying values due to their short-term nature.
4
In 2012, other financial liabilities included EUR 10 million non-derivative short-term financial liabilities which have been reclassified from other financial liabilities to short-term
liabilities for comparability purposes. Refer to Note 28, Loans and borrowings.
5
Loan commitments given but undrawn have been included in the earliest period in which they could be drawn.
6
Loan commitments obtained but undrawn have been included based on the period in which they expire and in 2012 included related commitment fees.
1
2
For the above tables, a line-by-line reconciliation to the consolidated statement of financial position is not possible due to the inclusion
of ‘off-balance sheet’ instruments such as loan commitments and the inclusion of interest receivable and payable.
104
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
Capital risk management
The Group manages its capital and financing to maintain investor, creditor and market confidence and to sustain future development of
the business. In addition, the Group’s capital management ensures that financial covenants attached to certain interest-bearing loans and
borrowings are being met (refer to Note 28, Loans and borrowings). For the purposes of the Group’s capital management, net cash and
other liquid assets and equity represent capital. The Group’s objective is to maintain sufficient capital in order to meet the cash requirements
of its business operations, including working capital needs, capital expenditures, research and development expenditures, debt service
obligations, other commitments and contractual obligations. The Group’s primary sources of liquidity are provided by cash from operations
and long and short-term financing arrangements, which are being monitored and adjusted in order to meet the Group’s objective for capital
management.
The following table presents the Group’s net cash and other liquid assets at December 31:
EURm
2013
2012
Total cash and other liquid assets
Less: Loans and borrowings1
2 769
(1 091)
2 420
(1 143)
Net cash and other liquid assets
1 678
1 277
Total loans and borrowings comprise long-term interest-bearing liabilities, the current portion of long-term loans and short-term borrowings. In 2012, total loans and
borrowings are offset by short-term deposits of EUR 7 million that were provided by the Group to Nokia and therefore reduce the amount presented in total loans and
borrowings above. Total loans and borrowings in 2012 include a reclassification of EUR 10 million from other financial liabilities to total loans and borrowings for comparability
purposes. Refer to Note 28, Loans and borrowings and Note 36, Related party transactions.
1
36 Related party transactions
On August 7, 2013, Nokia completed the acquisition of Siemens’ stake in the Group, and as a result, NSN is wholly owned by Nokia. After
August 7, 2013, Siemens was no longer a related party of the Group.
Financial statements
Transactions with Nokia and Siemens
The Group has a number of contracts with its sole shareholder, Nokia, and its subsidiary companies. Sales transactions with the parent
company mainly relate to historical contracts agreed by the parent company prior to the formation of the Group, where the Group now has
an obligation to deliver products or services to fulfill these agreements. The amounts outstanding are unsecured and will be settled in cash.
There have been no guarantees provided or received for any related party receivables or payables. In China, the Group paid a liability of
EUR 172 million to Nokia during the year (the amount outstanding at December 31, 2012 was EUR 180 million) which related to the networks
business before that business was transferred by Nokia to the Group upon its formation in 2007 and consisted of customer receivables
collected by the Group on behalf of Nokia.
In June 2013, the Group reached a full and final net settlement agreement with Siemens to settle certain customer receivables, including
related provisions, that were under legal dispute between Siemens and the customer, and a related loan of EUR 32 million from Siemens
to the Group. The customer receivables related to the networks business before that business was transferred by Siemens to the Group
upon its formation in 2007. On a net basis, the settlement resulted in a payment of EUR 8 million to Siemens.
In the fourth quarter of 2013, the Group settled several items with Nokia, totaling EUR 9 million, which was effected as an additional parent
equity contribution. None of the items is individually material.
No material expense has been recognized in the period for bad or doubtful debts in respect of the amounts owed by the related parties
(EUR 0 million in 2012 and EUR 1 million in 2011). At December 31, 2012 EUR 1 million of the valuation allowance for doubtful accounts related
to amounts owed by various Siemens entities.
Annual Report 2013
105
Notes to the Consolidated Financial Statements
The Group’s transactions with Nokia and Siemens are summarized in the following tables:
Sales of goods or services
EURm
2013
2012
2011
2013
2012
2011
4
6
5
20
6
23
28
79
93
146
161
225
Nokia
Siemens2
Amounts owed
by related parties
EURm
Nokia
Siemens2
Purchases of goods or services1
Loan or finance liability
balances outstanding
to shareholders
Amounts owed
to related parties
2013
2012
2013
2012
2013
2012
25
n/a
34
10
7
n/a
227
26
–
n/a
7
32
Purchases relate to information technology infrastructure, shared services, leases and software development.
Amounts disclosed for 2013 represent a seven-month period to August 7, 2013.
1
2
During the first quarter of 2013, the deposits and loans with Nokia, outstanding at December 31, 2012, were settled. The amounts
outstanding at December 31, 2012 are described below:
Description of loans or other finance receivables and liabilities
Short-term deposit from NSN to Nokia in Venezuela
Short-term loans from Nokia to Nokia Solutions and
Networks Finance B.V.
Amount of loan in the
agreement currency
Original term
Interest rate at
December 31
Balance at
December 31
VEF 49 million
52 days
1.00%
EUR 7 million
EUR 7 million
7 days
0.02%
EUR 7 million
The Group maintained offsetting deposits with Nokia as long as loans from Nokia were outstanding. In September 2011, the Group received
a capital injection of EUR 1 000 million from its parent companies (refer to Note 25, Issued share capital and share premium).
Lease transactions with Nokia and Siemens
The Group has multiple operating leases with Nokia. These operating leases mainly relate to property and typically have a lease term of five
years or longer. The Group leases this property from Nokia to support its network operations around the world. Total lease expenses paid
in 2013 are EUR 3 million (EUR 10 million in 2012 and EUR 19 million in 2011).
The Group had multiple operating leases with Siemens. Total lease expenses paid until August 7, 2013 were EUR 14 million (EUR 29 million
in 2012 and EUR 32 million in 2011).
The following table presents future costs for leasing contracts with Nokia at December 31, 2013:
EURm
Within one year
After one year but not more than five years
More than five years
Total
106
1
8
8
17
Nokia Solutions and Networks
Notes to the Consolidated Financial Statements
Transactions and positions with associates
EURm
2013
2012
2011
Share of results of associates
Share of other comprehensive income/(loss) of associates
Share of shareholders’ equity of associates
Sales to associates
Purchases from associates
Liabilities to associates
8
1
36
2
175
11
8
4
28
8
147
32
(17)
(2)
19
29
43
13
Board of Directors
The members of the Board of Directors are appointed by the parent company of the Group (prior to August 7, 2013, the parent companies
of the Group). The appointed board members are employees of the parent company, except for the Chairman of the Board. No other board
members, except the Chairman, receive remuneration or retirement benefits from the Group for the services they provide as members of
the Board of Directors. There were no loans granted to the members of the Board of Directors at December 31, 2013.
Management compensation
The remuneration of the NSN Executive Board and the Chairman of the Board of Directors during the years presented is as follows:
EURm
2013
2012
2011
Short-term employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payment expense1
13.1
1.4
–
11.9
13.5
20.5
1.0
–
1.3
4.0
9.4
0.7
5.2
0.6
(0.1)
Total
39.9
26.8
15.8
Share-based payment expense for the year is accrued in the consolidated statement of financial position (refer to Note 7, Share-based payment and Note 30, Accrued
expenses).
1
Financial statements
The number of executive board members ranged from 12 to 15 members during the year (13 to 15 members in 2012 and 13 to 14 members
in 2011). The amounts presented above include remuneration to the executive board members only for the time they were on the Executive
Board. In addition to the executive board members, the remuneration to the Chairman of the Board of Directors is included in the amounts
presented above since October 2011. There were no loans granted to the members of the Group Executive Board at December 31, 2013.
37 Subsequent events
On April 29, 2014 Nokia announced a new strategy, a program to optimize capital structure, and the leadership team of the Nokia Group,
including Rajeev Suri as President and Chief Executive Officer. As part of that announcement Nokia announced that NSN will now be known
as Networks and will operate under the Nokia brand. Additionally, Jesper Ovesen stepped down from his role as Executive Chairman of
Nokia Solutions and Networks upon the closing of the transaction whereby Nokia sold substantially all of its Devices & Services business
to Microsoft on Friday April 25, 2014.
Annual Report 2013
107
Company Financial Statements
Company Statement of Financial Position
(before proposed appropriation of result)
As at December 31
ASSETS
Non-current assets
Participations in group companies
Deferred tax assets
Long-term loans receivable
Available-for-sale investments
Current assets
Other receivables
Cash and cash equivalents
Notes
1
2
2
3
4
2013
2012
EURm
EURm
3 555
39
17
9
4 530
11
22
13
3 620
4 576
13
–
21
6
13
27
Total assets
3 633
4 603
EQUITY AND LIABILITIES
Shareholders’ equity
Share capital
Share premium
Translation differences
Fair value and other reserves
Accumulated deficit
Profit/(loss) for the year
0
9 753
(22)
(24)
(7 620)
3
0
9 744
133
(96)
(6 161)
(1 459)
Total equity
5
2 090
2 161
Non-current liabilities
Provisions
Deferred tax liabilities
6
568
22
704
19
590
723
885
68
1 684
35
953
1 719
Current liabilities
Loans from group companies
Other liabilities
7
8
Total liabilities
1 543
2 442
Total equity and liabilities
3 633
4 603
The Company's financial statements for the year ended December 31, 2012 reflect the retrospective application of IAS 19R, Employee Benefits (refer to Note 8, Pensions in
the consolidated financial statements).
The notes are an integral part of these consolidated financial statements.
108
Nokia Solutions and Networks
Company Financial Statements
Company Income Statement
For the year ended December 31
Profit/(loss) from group companies after taxes
Company loss for the year after taxes
Profit/(loss) for the year
2013
2012
2011
EURm
EURm
EURm
97
(94)
(1 425)
(34)
(660)
(48)
3
(1 459)
(708)
The Company's financial statements for the years ended December 31, 2012 and December 31, 2011 reflect the retrospective application of IAS 19R, Employee Benefits
(refer to Note 8, Pensions in the consolidated financial statements).
The notes are an integral part of these consolidated financial statements.
Financial statements
Annual Report 2013
109
Notes to the Company Financial Statements
General notes for the preparation of the
company financial statements
The company financial statements have been prepared in
accordance with the statutory provisions of Part 9, Book 2,
of the Netherlands Civil Code. For the principles for the recognition
and measurement of assets and liabilities and the determination of
the result for its company financial statements, Nokia Solutions and
Networks B.V. applies the option provided in Section 2:362 (8)
of the Netherlands Civil Code. This means that the principles for
the recognition and measurement of assets and liabilities and
determination of the result (hereinafter referred to as ‘Accounting
principles’) of the company financial statements of Nokia Solutions
and Networks B.V. are the same as those applied for the
consolidated financial statements under International Financial
Reporting Standards. For the accounting policies for the Company
statement of financial position and income statement, reference is
made to the notes to the consolidated statement of financial position
and income statement pages 53 to 107.
The financial information relating to Nokia Solutions and Networks
B.V. is included in the consolidated financial statements. In
accordance with section 2:402 of the Netherlands Civil Code, the
Company financial statements only contain an abridged income
statement.
Definition of Company:‘Company’ refers to the financial
statements of the Parent, Nokia
Solutions and Networks B.V.
Definition of the Group:The Nokia Solutions and Networks
B.V. group of companies (The
Parent and all its subsidiaries).
Commitments and
Refer to Note 33, Commitments
contingencies: and contingencies, in the
consolidated financial statements.
Refer to Note 1, Accounting
Consolidated financial
statements: principles: Basis of presentation
section, in the consolidated financial
statements.
Employees of the Company:The average monthly number of
employees was two (two in 2012).
Directors’ remuneration:Refer to Note 36, Related party
transactions: Management
compensation section, in the
consolidated financial statements.
1 Participations in group companies
Group companies and other associated companies in which the
Company exercises significant influence are stated at net equity
value. Significant influence exists when the Company owns, directly
or indirectly through subsidiaries, more than 20% of the voting rights
of the company.
Participations in group companies are initially acquired at the fair
value of identifiable assets and liabilities upon acquisition. Any
subsequent valuation is calculated using the accounting principles
applied in these financial statements. Participations in group
companies with negative equity values are carried at nil. A provision
is recognized when the Company is fully or partially liable for the
obligations of the group company or has the firm intention to allow
the group company to settle its obligations. The long-term loan
receivables are considered as part of the equity consideration
when a provision is necessary.
The following table reconciles the opening and closing balances
of participations in group companies:
EURm
2013
2012
Net carrying amount January 1
Profit/(loss) from group companies after taxes
Dividend from group companies
Repayments, additions, acquisitions and disposals
Translation differences
Changes in other comprehensive income
Pension restatement
Transfers (from)/to provisions, net
Other movements
4 530
97
(347)
(503)
(155)
75
–
(136)
(6)
4 776
(1 425)
(75)
1 071
(2)
93
(153)
246
(1)
Net carrying amount December 31
3 555
4 530
epayments, additions, acquisitions and disposals include a capital
R
repayment of EUR 500 million from Nokia Solutions and Networks Oy
(capital injections of EUR 900 million to Nokia Solutions and Networks
Oy in 2012).
ension restatements refer to the impact of the retrospective
P
application of the revised International Accounting Standard, IAS 19,
Employee Benefits which resulted in a total net reduction of EUR 165
million in equity in the consolidated financial statements. EUR 153
million of the adjustment relates to 2012 and EUR 12 million to 2011
(refer to Note 8, Pensions, in the consolidated financial statements).
Nokia Solutions and Networks Timo Ihamuotila, Louise Pentland
B.V. Board of Directors:and Juha Äkräs
110
Nokia Solutions and Networks
Notes to the Company Financial Statements
Participations in group companies at December 31, 2013:
Place of residence and country
Full consolidation
Nokia Solutions and Networks MEA FZ-LLC
Nokia Siemens Networks Afghanistan LLC
“Nokia Solutions and Networks” CJSC
Nokia Solutions and Networks Argentina S.A.
Nokia Solutions and Networks Holding Österreich GmbH
Nokia Solutions and Networks Österreich GmbH
Nokia Solutions and Networks Australia Pty. Ltd.
Nokia Solutions and Networks Baku LLC
Nokia Solutions and Networks d.o.o. Banja Luka
Nokia Solutions and Networks d.o.o., Sarajevo
Nokia Solutions and Networks Bangladesh Limited
Nokia Solutions and Networks Belgium NV
Nokia Solutions and Networks EOOD
Nokia Solutions and Networks Bolivia S.A.
Nokia Solutions and Networks do Brasil Serviços Ltda.
Nokia Solutions and Networks do Brasil Telecomunicações Ltda.
Nokia Solutions and Networks LLC
IRIS Telekom FLLC
Nokia Solutions and Networks Canada Inc.
Nokia Solutions and Networks Schweiz AG
Nokia Solutions and Networks Chile Ltd.
Hunan Hua Nuo Technology Co. Ltd.
Nokia (Beijing) Communication Technology Service Co. Ltd.
Nokia Solutions and Networks Technology Service Co., Ltd.
Nokia Solutions and Networks (Beijing) Communications Co., Ltd.
Nokia Solutions and Networks (Shanghai) Ltd.
Nokia Solutions and Networks (Suzhou) Co., Ltd.
Nokia Solutions and Networks (Suzhou) Supply Chain Service Co., Ltd.
Nokia Solutions and Networks (Tianjin) Co., Ltd
Nokia Solutions and Networks Investment (China) Co., Ltd.
Nokia Solutions and Networks Neu CommTech Co., Ltd.
Nokia Solutions and Networks System Co., Ltd.
Nokia Solutions and Networks System Technology (Beijing) Co., Ltd.
Nokia Solutions and Networks Colombia Ltda.
Nokia Solutions and Networks Costa Rica, S.A.
Nokia Solutions and Networks Czech Republic, s.r.o.
Nokia Solutions and Networks Beteiligungen Inland GmbH & Co. KG
Nokia Solutions and Networks Beteiligungen Inland Management GmbH
Nokia Solutions and Networks Deutschland GmbH
Nokia Solutions and Networks GmbH & Co. KG
Nokia Solutions and Networks International Holding GmbH
Nokia Solutions and Networks Management GmbH
Nokia Solutions and Networks Management International GmbH
Nokia Solutions and Networks Operations GmbH
Nokia Solutions and Networks Services GmbH & Co. KG
Nokia Solutions and Networks Services Management GmbH
Nokia Solutions and Networks Transfergesellschaft mbH
Nokia Solutions and Networks Vermögensverwaltung GmbH
Nokia Solutions and Networks Vorratsgesellschaft 6 mbH
Nokia Solutions and Networks Danmark A/S
Nokia Siemens Networks Algérie SARL
Nokia Solutions and Networks Ecuador S.A.
Nokia Solutions and Networks OÜ
Nokia Solutions and Networks Egypt LLC
Nokia Solutions and Networks S.A.E.
Nokia Solutions and Networks Spain, S.L.
Dubai, United Arab Emirates
Kabul, Afghanistan
Yerevan, Armenia
Buenos Aires, Argentina
Vienna, Austria
Vienna, Austria
Sydney, Australia
Baku, Azerbaijan
Banja Luka, Bosnia-Herzegovina
Sarajevo, Bosnia-Herzegovina
Dhaka, Bangladesh
Turnhout, Belgium
Sofia, Bulgaria
Cochabamba, Bolivia
Sao Paolo, Brazil
Sao Paulo, Brazil
Minsk, Belarus
Minsk, Belarus
Mississauga, Canada
Zürich, Switzerland
Santiago, Chile
Changsha, China
Beijing, China
Beijing, China
Beijing, China
Shanghai, China
Suzhou, China
Suzhou, China
Tianjin, China
Beijing, China
Liaoning, China
Beijing, China
Beijing, China
Santafe de Bogota, Colombia
San Jose, Costa Rica
Prague, Czech Republic
Munich, Germany
Munich, Germany
Munich, Germany
Munich, Germany
Munich, Germany
Munich, Germany
Munich, Germany
Munich, Germany
Munich, Germany
Munich, Germany
Munich, Germany
Munich, Germany
Munich, Germany
Copenhagen, Denmark
Algiers, Algeria
Guayaquil, Ecuador
Tallinn, Estonia
Cairo, Egypt
Cairo, Egypt
Madrid, Spain
Annual Report 2013
Group
ownership %
100.00**
100.00
100.00
100.00
100.00
100.00
100.00
100.00**
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00**
100.00**
100.00
100.00
100.00*
100.00
100.00
60.00
83.90
100.00
100.00
100.00
54.00
83.90*
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00**
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00**
75.20
99.90
Financial statements
Name
111
Notes to the Company Financial Statements
112
Name
Place of residence and country
Nokia Solutions and Networks Asset Management Oy
Nokia Solutions and Networks Branch Operations Oy
Nokia Solutions and Networks Oy
Nokia Solutions and Networks France
Apertio Ltd.
Apertio Partners Ltd.
Invergence Ltd.
Nokia Solutions and Networks UK Ltd.
Nokia Solutions and Networks Hellas A.E.
Nokia Siemens Networks Guatemala S.A.
Nokia Solutions and Networks H.K. Ltd.
Nokia Solutions and Networks Honduras, S.A.
Nokia Solutions and Networks d.o.o.
Nokia Solutions and Networks Kft.
Nokia Solutions and Networks TraffiCOM Kft.
PT Nokia Siemens Networks
Atrica Ireland Ltd.
Nokia Solutions and Networks Ireland Limited
Nokia Solutions and Networks Ethernet Services Ltd
Nokia Solutions and Networks Israel Ltd.
Nokia Solutions and Networks Technologies Israel (1990) Ltd.
Nokia Solutions and Networks India Private Limited
Pishahang Communications Networks Development Company
Nokia Solutions and Networks Italia S.p.A.
Nokia Solutions and Networks S.p.A.
Nokia Solutions and Networks Japan Corp.
Nokia Solutions and Networks Kenya Ltd.
Nokia Solutions and Networks Korea Ltd.
Nokia Siemens Networks Kuwait Company W.L.L.
“Nokia Solutions and Networks Kazakhstan” LLP
Nokia Siemens Networks Lanka Pvt. Ltd.
UAB “Nokia Solutions and Networks”
“Nokia Solutions and Networks” SIA
Nokia Siemens Networks Maroc SARL
“Nokia Solutions and Networks” S.R.L.
Nokia Siemens Networks Myanmar Limited
Nokia Solutions and Networks Delivery, S.A. de C.V.
Nokia Solutions and Networks, S.A. de C.V.
Nokia Solutions and Networks Servicios, S.A. de C.V.
Nokia Solutions and Networks Sdn. Bhd.
Nokia Siemens Networks Nigeria Ltd.
Nokia Siemens Networks Nicaragua S.A.
Nokia Solutions and Networks Finance B.V.
Nokia Solutions and Networks Nederland B.V.
Nokia Solutions and Networks Norge AS
Nokia Solutions and Networks NZ Ltd.
Nokia Solutions and Networks Peru S.A.
Nokia Solutions and Networks Philippines, Inc.
Nokia Solutions and Networks Pakistan (Private) Limited
Nokia Solutions and Networks Sp. z.o.o.
Nokia Solutions and Networks Portugal, S.A.
Nokia Solutions and Networks Romania SRL
Nokia Solutions and Networks Serbia D.O.O. Beograd
Nokia Solutions and Networks LLC
Nokia Solutions and Networks CJSC
Wireless Technologies Center LLC
Nokia Solutions and Networks AB
Nokia Solutions and Networks Singapore Pte. Ltd.
Nokia Solutions and Networks d.o.o.
Helsinki, Finland
Helsinki, Finland
Helsinki, Finland
Bobigny, France
Bristol, United Kingdom
Bristol, United Kingdom
Bristol, United Kingdom
Huntingdon, United Kingdom
Athens, Greece
Guatemala City, Guatemala
Hong Kong, China
Tegucigalpa, Honduras
Zagreb, Croatia
Budapest, Hungary
Budapest, Hungary
Jakarta, Indonesia
Clare, Ireland
Dublin, Ireland
Hod HaSharon, Israel
Hod HaSharon, Israel
Hod HaSharon, Israel
New Delhi, India
Tehran, Iran
Milan, Italy
Milan, Italy
Tokyo, Japan
Nairobi, Kenya
Seoul, South Korea
Safat, Kuwait
Almaty, Kazakhstan
Colombo, Sri Lanka
Vilnius, Lithuania
Riga, Latvia
Rabat, Morocco
Chisinau, Moldova
Myanmar, Myanmar
Mexico City, Mexico
Mexico City, Mexico
Mexico City, Mexico
Kuala Lumpur, Malaysia
Lagos, Nigeria
Managua, Nicaragua
Haarlem, Netherlands
s´Gravenhage, Netherlands
Oslo, Norway
Auckland, New Zealand
Lima, Peru
Taguig City, Philippines
Islamabad, Pakistan
Warsaw, Poland
Amadora, Portugal
Bucharest, Romania
Belgrade, Serbia
Moscow, Russia
Moscow, Russia
Tomsk, Russia
Stockholm, Sweden
Singapore, Singapore
Ljubljana, Slovenia
Group
ownership %
100.00
100.00
100.00
99.99
100.00
100.00
100.00
100.00
100.00
100.00*
100.00**
100.00* **
100.00
100.00
99.00
100.00
100.00
100.00
100.00
100.00
100.00**
100.00
49.00
100.00
100.00
100.00
100.00
100.00
49.00
100.00
100.00
100.00
100.00
100.00**
100.00
100.00
100.00
100.00
100.00
100.00
100.00**
100.00* **
100.00
100.00**
100.00
100.00
100.00**
100.00
100.00
100.00
100.00
100.00
100.00
100.00**
100.00
51.00
100.00
100.00**
100.00
Nokia Solutions and Networks
Notes to the Company Financial Statements
Name
Nokia Solutions and Networks Slovakia, s.r.o.
Nokia Solutions and Networks El Salvador, S.A.
Nokia Solutions and Networks (Thailand) Ltd.
Nokia Solutions and Networks CCC
Nokia Solutions and Networks Tunisia S.A.
IRIS Telekomünikasyon Mühendislik Hizmetleri A.Ş.
Nokia Solutions Networks İletişim A.Ş.
Nokia Solutions and Networks Taiwan Co., Ltd.
Nokia Solutions and Networks Tanzania Ltd.
LLC “Nokia Solutions and Networks Ukraine”
OOO MKM Telekom
Nokia Solutions and Networks Holdings USA Inc.
Nokia Solutions and Networks US LLC
IRIS Telekom Toshkent LLC
“Nokia Solutions and Networks Tashkent” LLC
Nokia Siemens Networks de Venezuela C.A.
Nokia Solutions and Networks Technical Services Vietnam Company
Limited
Nokia Solutions and Networks Holdings (Pty) Ltd
Nokia Solutions and Networks South Africa (Pty) Ltd
Associated companies and other equity stakes
Fujian Funo Mobile Communication Technology Co. Ltd.
Open Cloud Ltd.
TD Tech Holding Ltd.
MobiRail V.O.F.
ETSI Technologies Inc.
Site-Con Inc.
Nokia Siemens Networks Al Saudia Ltd.
Place of residence and country
Group
ownership %
Bratislava, Slovakia
San Salvador, El Salvador
Bangkok, Thailand
Tunis, Tunisia
Tunis, Tunisia
Istanbul, Turkey
Istanbul, Turkey
Taipei, Taiwan
Dar Es Salaam, Tanzania
Kiev, Ukraine
Vyshgorod, Ukraine
Delaware, U.S.
Delaware, U.S.
Tashkent, Uzbekistan
Tashkent, Uzbekistan
Caracas, Venezuela
100.00
100.00*
100.00
100.00
100.00
100.00
100.00
100.00
65.00**
100.00
66.33*
100.00
100.00
100.00*
100.00
100.00**
Phuong Mai, Vietnam
Pretoria, South Africa
Pretoria, South Africa
100.00
87.00**
100.00
Fuzhou, China
Cambridge, United Kingdom
Hong Kong, China
Rotterdam, The Netherlands
Rizal, Philippines
Makati, Philippines
Riyadh, Saudi Arabia
49.00
35.00
51.00
50.00
40.00
40.00*
49.00
*In process of liquidation.
**Provision recognized (refer to Note 6, Provisions, in the Company financial statements).
Financial statements
Company names are as at April, 2014.
Annual Report 2013
113
Notes to the Company Financial Statements
2 Other non-current assets
Long-term loans receivable consists of an investment of EUR 17 million (EUR 22 million in 2012) recognized at amortized cost using the
effective interest rate. Available-for-sale investments consist of investments of EUR 9 million (EUR 13 million in 2012) carried at fair value.
3 Other receivables
Other receivables consist of EUR 8 million intercompany accrued income with other group companies (EUR 9 million in 2012), EUR 3 million of
income tax receivable (EUR 11 million in 2012) and EUR 2 million of accrued interest income (EUR 1 million in 2012).
4 Cash and cash equivalents
Cash and cash equivalents are comprised of bank and cash balances.
5 Shareholders’ equity
Refer to the consolidated statement of changes in shareholders’ equity and Note 25, Issued share capital and share premium, in the
consolidated financial statements for a specification of shareholders’ equity.
6 Provisions
EURm
2013
2012
At January 1
Transfers to participations
704
(136)
458
246
At December 31
568
704
The provision recognized for participations in group companies relates to the Company’s share in the equity deficit since the Company has
assumed liability for the obligations of these group companies. Refer to Note 1, Participations in group companies, in the company financial
statements for the participations provided for at December 31, 2013.
7 Current loans from group companies
EURm
2013
2012
Intercompany cash pool liability
Other current loans from group companies
119
766
993
691
Total
885
1 684
The intercompany cash pool liability carries an interest rate of 1 month LIBOR + 2.5%.
Other current loans from Group companies consist of short-term loans from Nokia Solutions and Networks Finance B.V. with interest rates of 6.7%
and 6.8% as well as Nokia Solutions and Networks Hellas A.E. with an interest rate of 0.17%.
114
Nokia Solutions and Networks
Notes to the Company Financial Statements
8 Other liabilities
Other liabilities include an accrual of EUR 41 million for share-based compensation (EUR 11 million in 2012), refer to Note 7, Share-based
payment in the consolidated financial statements. The remaining amount under the other liabilities relates to accrued interest expenses
for intercompany loans and intercompany accounts payable.
9 Audit fees
The following table presents the aggregate fees for professional services and other services rendered by PricewaterhouseCoopers:
EURm
Audit fees
Audit-related fees
Tax fees
Total
2013
2012
2011
9.9
9.4
0.4
10.2
1.4
1.6
10.9
2.3
2.1
19.7
13.2
15.3
The fees listed above relate to the procedures provided to the Company and its consolidated group companies by PricewaterhouseCoopers
Accountants N.V., the Netherlands, the external auditor as referred to in Section 1(1) of the Dutch Accounting Firms Oversight Act (Dutch
acronym: Wta), and by other Dutch and foreign-based PricewaterhouseCoopers firms, including their tax services and advisory groups.
The total fees of PricewaterhouseCoopers Accountants N.V., the Netherlands, charged to the Company and its consolidated group entities
amounted to EUR 0.1 million for each year presented.
10 Guarantees
At December 31, 2013 Nokia Solutions and Networks B.V. and Nokia Solutions and Networks Oy act as the guarantors for the following:
–Bond 2018 (EUR 450 million)
–Bond 2020 (EUR 350 million)
–European Investment Bank loan (EUR 50 million)
–Nordic Investment Bank loan (EUR 20 million)
Financial statements
At December 31, 2013 Nokia Solutions and Networks B.V. acts as the guarantor for the following:
–Commercial paper program in Finland (EUR 500 million), launched in 2010, EUR 25 million issued at December 31, 2013
–Finnish pension loan guarantee facility (EUR 88 million)
The bonds include covenants restricting, among other things, the Group’s ability to incur or guarantee additional debt, pay dividends, buy
back equity and make investments in non-controlling interests, create or incur certain liens and engage in merger, consolidation or asset
sales. These covenants, which are customary in the issuance of high yield bonds, are subject to a number of qualifications and exceptions.
The European Investment Bank and the Nordic Investment Bank loans, the Finnish pension loan guarantee and the forward starting credit
facility include financial covenants relating to financial leverage and interest coverage of the Group. The Group’s credit facilities are also
subject to cross default provisions. All financial covenants and cross default provisions were satisfied at December 31, 2013. Refer to
Note 28, Loans and borrowings, in the consolidated financial statements.
Nokia Solutions and Networks B.V. issued BW2: Article 403 section 1b.C.C.2 statements to third parties for its Dutch wholly-owned
subsidiaries, Nokia Solutions and Networks Finance B.V. and Nokia Solutions and Networks Nederland B.V.
Commitments and contingencies not included in the statement of financial position
The Company forms a tax group for Dutch corporate income tax purposes with Nokia Solutions and Networks Finance B.V. and Nokia
Solutions and Networks Nederland B.V. The Company is the head of the fiscal unity and therefore is the relevant tax payer for the Dutch
corporate income tax due for the tax group.
Under the Dutch Collection of State Taxes Act, the Company and its group members that are joined in the tax group for corporate income tax
purposes are still responsible that the relevant corporate income tax due of the tax group is paid by the Company. In the event this is not the
case, the Company and its group members could be jointly and severally liable for the corporate income taxes payable by the tax group.
Annual Report 2013
115
Notes to the Company Financial Statements
NOKIA SOLUTIONS AND NETWORKS B.V.
Board of Directors
Statement of Signatures
Espoo, April 30, 2014
Timo Ihamuotila
Louise Pentland
Juha Äkräs
116
Nokia Solutions and Networks
Other information
Proposed profit appropriation
Pursuant to the Articles of Association, distribution of profits can only
be made following the adoption of the annual accounts which show
that such a distribution is possible. The profits shall be at the free
disposal of the general meeting. However, the Company may only
make distributions to shareholders to the extent that its equity
exceeds the total amount of its issued share capital and the reserves
to be maintained pursuant to law. In addition, a loss may only be
applied against reserves maintained pursuant to the law to the extent
permitted by law.
Proposed appropriation of result
The annual general meeting of the shareholders and the Board of
Directors approve the allocation of the results. In a tie voting
regarding a proposal to distribute or reserve profits, the profits
concerned shall be reserved. This is in accordance with the Articles
of Association.
Subsequent events
Refer to Note 37, Subsequent events, in the Consolidated Financial
Statements.
Financial statements
Annual Report 2013
117
Independent auditor’s report
To: the general meeting of Nokia Solutions and Networks B.V.
Report on the financial statements
We have audited the accompanying financial statements 2013 of
Nokia Solutions and Networks B.V., The Hague as set out on pages
47 to 116. The financial statements include the consolidated financial
statements and the company financial statements. The consolidated
financial statements comprise the consolidated statement of financial
position as at 31 December 2013, the consolidated income
statement, the consolidated statement of comprehensive income,
changes in equity and cash flows for the year then ended and the
notes, comprising a summary of significant accounting policies and
other explanatory information. The company financial statements
comprise the company statement of financial position as at 31
December 2013, the company income statement for the year then
ended and the notes, comprising a summary of accounting policies
and other explanatory information.
Directors’ responsibility
The directors are responsible for the preparation and fair presentation
of these financial statements in accordance with International
Financial Reporting Standards as adopted by the European Union
and with Part 9 of Book 2 of the Dutch Civil Code, and for the
preparation of the directors’ report in accordance with Part 9 of Book
2 of the Dutch Civil Code. Furthermore, the directors are responsible
for such internal control as they determine is necessary to enable the
preparation of the financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in
accordance with Dutch law, including the Dutch Standards on
Auditing. This requires that we comply with ethical requirements and
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion with respect to the consolidated financial statements
In our opinion, the consolidated financial statements give a true and
fair view of the financial position of Nokia Solutions and Networks B.V.
as at 31 December 2013, and of its result and its cash flows for the
year then ended in accordance with International Financial Reporting
Standards as adopted by the European Union and with Part 9 of
Book 2 of the Dutch Civil Code.
Opinion with respect to the company financial statements
In our opinion, the company financial statements give a true and fair
view of the financial position of Nokia Solutions and Networks B.V. as
at 31 December 2013, and of its result for the year then ended in
accordance with Part 9 of Book 2 of the Dutch Civil Code.
Report on other legal and regulatory requirements
Pursuant to the legal requirement under Section 2: 393 sub 5 at e
and f of the Dutch Civil Code, we have no deficiencies to report as a
result of our examination whether the directors’ report, to the extent
we can assess, has been prepared in accordance with Part 9 of
Book 2 of this Code, and whether the information as required under
Section 2: 392 sub 1 at b-h has been annexed. Further we report that
the directors’ report, to the extent we can assess, is consistent with
the financial statements as required by Section 2: 391 sub 4 of the
Dutch Civil Code.
Amsterdam, 30 April 2014
PricewaterhouseCoopers Accountants N.V.
C.J. van Zelst RA
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
company’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control. An
audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made
by the directors, as well as evaluating the overall presentation of the
financial statements.
118
Nokia Solutions and Networks
Glossary
Fuel cell solution
Fuel cell systems provides a backup power source for extended
periods during mains power outages caused by natural calamities
and commercial grid failures.
3G (Third Generation Mobile Communications)
The third generation of mobile communications standards
designed for carrying both voice and data generally using
WCDMA, CDMA or close variants.
Gbps
Gigabit per second – a measure of data transfer rate, with 1 gigabit
being equivalent to 1 000 megabits.
4G (Fourth Generation Mobile Communications)
The fourth generation of mobile communications standards
based on LTE, offering IP data connections only and providing
true broadband internet access for mobile devices.
GSM (Global System for Mobile Communications)
A digital system for mobile communications that is based on a widely
accepted standard and typically operates in the 900 MHz, 1 800 MHz
and 1 900 MHz frequency bands.
5G (Fifth Generation Mobile Communications)
The next major phase of mobile telecommunications standards.
5G will be the set of technical components and systems needed to
handle new requirements and overcome the limits of current systems.
HSPA (High-Speed Packet Access)
A wideband code division multiple access (WCDMA or 3G) feature
that refers to both 3GPP high-speed downlink packet access and
high-speed uplink packet access.
Base Station
A network element in a mobile network responsible for radio
transmission and reception to or from a mobile device.
IP Multimedia Subsystems (IMS)
Architectural framework designed to deliver IP based multimedia
services on telecommunications networks. Standardized by 3GPP.
Customer experience management (CEM)
Software suite used to manage and improve the customer
experience, based on customer, device and network insights.
KPI
A key performance indicator (KPI) is a type of performance
measurement to evaluate success of a particular activity.
FD-LTE (Frequency Division Long-Term Evolution)
also known as FDD (Frequency Division Duplex)
A standard for LTE mobile broadband networks. Frequency Division
means that separate, parallel connections are used to carry data
from the base station to the mobile device (‘downlink’) and from the
mobile device to the base station (‘uplink’).
Liquid Applications
Applications which can be hosted on an IT server blade and data
storage included within a base station which can utilize real-time
network information.
Flexi Zone
A number of Flexi small cells which can be meshed together in a
zone which collectively act as a single but distributed macrocell.
A Flexi Zone controller application can be added to existing Flexi
Multiradio 10 base stations and provides the functionality which
meshes a large number of nearby small cells and lets them
appear as a single cell to the macro network.
Liquid Core
NSN’s proprietary name for a core network product suite
which enables dynamic capacity allocation across the different
network functions.
Flexi Multiradio base station
Flexi Multiradio 10 Base Station (BTS) is the latest generation of
market-leading Flexi Multiradio Base Station-family. Based on
new 3rd generation system module platform developed to support
higher GSM, HSPA+, LTE and LTE-A capacities and a wider variety
of BTS site configurations with a minimized amount of equipment
and with lower power consumption.
LTE (Long-Term Evolution)
The fourth generation of mobile communications designed
to provide high-speed broadband over a flat, all-IP network.
Annual Report 2013
Financial statements
2G (Second Generation Mobile Communications)
2G cellular telecom networks were commercially launched on
the GSM (Global System for Mobile Communications) standard.
2G introduced data services for mobile, starting with SMS text
messages and EDGE (Enhanced Data rates for GSM Evolution)
119
Glossary
LTE Advanced
LTE Advanced or LTE-A is the evolution of LTE. It allows operators
to use more than one spectrum band in parallel and defines a set
of techniques focused on enhancing the mobile broadband user
experience, as well as reducing the cost per bit.
Subscriber
The term used to refer to a person that has an account with a mobile
network carrier.
Mbps
Megabit per second (not to be confused with MBps, which would
be megabytes per second) is a measure of data transfer rate, with
1 megabit being equivalent to 1 000 kilobits.
Subscription
The contract between a mobile phone subscriber and the network
carrier for its mobile phone services.
Microcell
A microcell is a cell in a mobile phone network served by a
low-power cellular base station covering a limited area, typically
up to 2 kilometers wide.
TD-LTE
TD-LTE (Time Division Long-Term Evolution) also known as TDD
(Time Division Duplex): An alternative standard for LTE mobile
broadband networks. Time Division means that a single connection
is used alternately to carry data from the base station to the mobile
device (‘downlink’) and then from the mobile device to the base
station (‘uplink’).
Mobile Backhaul
The backhaul portion of the network which is the intermediate
link between the core network and the radio access network.
Telco Cloud
The use of shared computing, data storage and programmable
transport that can be support a variety of network functions.
This can be built by the operator purely for their own purposes
(‘Private Telco Cloud’) or bought as service from a 3rd party provider.
Picocell
A picocell is a small cellular base station typically covering a
small area typically up to 200 meters wide. Usually used to extend
coverage to indoor areas or to add network capacity in areas with
very dense phone usage, such as train stations.
VoLTE
Voice over LTE, required to offer voice services on an all-IP LTE
network and generally provided using IMS. Early LTE operators have
provided voice connections using Circuit Switch Fall Back (CSFB),
which means the voice call is actually carried on a 2G or 3G network.
Radio Access Network (RAN)
A mobile telecommunications system consisting of radio base
stations and transmission equipment. In 4G networks, the base
stations connect directly to the core (in a ‘flat architecture’) whereas
in both 2G and 3G networks there is an intermediate controller,
known as a Base Station Controller (BSC) for 2G and a Radio
Node Controller (RNC) for 3G.
WCDMA
WCDMA (Wideband Code Division Multiple Access): a third
generation mobile wireless technology that offers high data speeds
to mobile and portable wireless devices.
Single RAN
Single RAN allows different radio technologies to be provided at the
same time from a single base station, using a multi-purpose platform.
WiMAX (Worldwide Interoperability for Microwave Access)
A technology for wireless networks that operates according to
the 802.16 standard of the Institute of Electrical and Electronics
Engineers (IEEE) now largely superseded by TD-LTE.
Small cells
Small cells are low-powered radio access nodes (microcells or
picocells) and are a vital element to handling very dense data traffic
demands. 3G and LTE small cells use spectrum licensed by the
operator; WiFi uses unlicensed spectrum which is therefore not
under the operator’s exclusive control.
SMS
Short Message Service (SMS) is a text messaging service
component of phone, Web, or mobile communication systems.
120
Nokia Solutions and Networks
Mailing address
NSN
P.O. Box 1
FI-02022
Finland
Visiting address
NSN
Karaportti 3
02610 Espoo
Finland
+358 71 400 4000
nsn.com
Registered address
Nokia Solutions and Networks B.V.
Werner von Siemensstraat 7
2712 PN Zoetermeer
The Netherlands
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